The 2026/2027 National Budget has ignited a fierce debate over the structural health of Fiji’s economy and the financial future of our national carrier, Fiji Airways. While the airline undoubtedly requires strategic support to navigate global fuel volatility, the Government’s proposed funding mechanism—a 5 per cent Tourism Services Tax (TST) levied on gross turnover—demands rigorous scrutiny. Taxing the gross revenue of our primary economic engine to subsidise a singular national utility creates a perilous fiscal imbalance. We must objectively analyse how this specific application of a turnover tax threatens the hospitality sector’s competitiveness, without dismissing the airline’s critical need for national backing.
The fiscal reality
The 2026/2027 National Budget has arrived, framed as ‘sustainable’, yet it introduces a fiscal measure that threatens to erode the foundations of our primary economic pillar. The proposed 5 per cent Tourism Services Tax (TST) is not a structural reform; it is a regressive levy on gross turnover. By targeting operators with annual turnover exceeding $2 million, the Government is not merely raising revenue—it is artificially inflating the cost of doing business for the very sector that generates our most critical foreign exchange.
This is a short-term liquidity grab masquerading as fiscal policy, and it fails to account for the razor-thin margins that define the modern hospitality landscape. We are effectively taxing the engine of our economy to repair a single, albeit vital, component.
The turnover vs profit fallacy
To understand the damage, one must look at the math. A 5 per cent tax on gross turnover ignores the fundamental economic distinction between revenue and profitability. In the hotel and tourism sector, operating costs—fuel, wages, maintenance, and compliance—are volatile and rising.
For a mid-sized operator with a 15 per cent net profit margin, a 5 per cent tax on total revenue translates to a staggering 33 per cent reduction in net income. When layered atop existing 25 per cent corporate taxes, the total tax burden effectively suffocates the capacity for reinvestment. This is not taxation; it is capital erosion. By ignoring the profit reality of the sector, the Government is forcing businesses into a position where they must either slash their service quality or pass costs to the consumer.
The competitive disadvantage
Fiji does not operate in a vacuum. We compete for the global tourist dollar against regional titans like Bali, Thailand, and Vietnam, all of which benefit from lower labour costs, massive economies of scale, and highly developed supply chains. By imposing a 17.5 per cent cumulative tax burden (12.5 per cent VAT + 5 per cent TST), excluding the departure tax, Fiji is actively pricing itself out of the market.
Our competitors are not sitting idle; they are aggressively investing in product diversity. While we add a ‘sector-specific bludgeon’, they are enhancing their value proposition. The Government’s move risks driving high-value travellers—those who are price-sensitive regarding value-for-money—directly into the hands of our competitors, causing long-term damage to our destination brand equity.
The breach of commercial integrity
Tourism is a forward-booked, contract-intensive industry. Major wholesalers and tour operators fix their prices, marketing campaigns, and brochures months, sometimes years, in advance. Imposing a 5 per cent tax effective September 1, 2026, without a grace period for pre-existing contracts, represents a fundamental breach of commercial predictability.
It signals to international partners that Fiji’s fiscal environment is unstable and unpredictable. When a wholesaler cannot guarantee the costs quoted in a signed contract, the ‘risk premium’ associated with booking Fiji increases.
This is a reputational hit that will echo far longer than the immediate budgetary cycle. We are burning the credibility of our trade relationships for the sake of a quick revenue infusion.
Redefining the ‘national asset’
The argument that Fiji Airways requires this specific taxation relies on the assumption that the airline is a tourism asset. This is a strategic error. Fiji Airways is a national utility, essential for trade, diaspora connectivity, medical travel, and national security. If it is a national strategic asset, its financial viability is a national responsibility, not a burden to be offloaded onto the tourism industry.
By ring-fencing the cost within the tourism sector, the Government absolves the broader economy—and the general treasury—of the responsibility for a critical piece of national infrastructure.
We must stop confusing the airline’s operational survival with the tourism sector’s financial health; they are linked, but they are not the same entity.
The failure of transparent governance
Where is the accountability? The budget mentions revenue directed toward supporting the national carrier, yet there is no mechanism for independent, transparent, or public auditing of these funds. A tax of this magnitude demands rigorous fiscal oversight. If the tourism industry is to be forced into the role of an involuntary financier, then the collected capital must be tracked with absolute precision.
We need to see a ‘ring-fenced’ fund, audited by a third party, and reported to the public annually. Without such guarantees, the industry has no way of knowing if its contribution is truly saving the airline or merely plugging holes in a wider, leaking budgetary bucket.
The $200m guarantee question
The Government has already signalled potential support for the airline through a $200m guarantee, alongside an extended loss carry-forward period of 15 years. These are significant, structural measures that align with how other nations treat their flagship carriers. Why, then, is a 5 per cent TST necessary?
The presence of these other measures suggests that the TST is not a financial necessity but a policy choice—one that prioritises immediate revenue over long-term sector growth. If the Government has the capacity to extend guarantees, it has the capacity to find a more equitable, less destructive funding mechanism that does not target the margins of our hotels and tour operators.
Multiplier effect and supply chains
The tourism sector does not exist in isolation. Its supply chains weave through agriculture, transport, retail, and construction. When the cost of tourism services rises, the demand elasticity kicks in—visitors spend less on dining, excursions, and local services.
By forcing operators to raise their rates to cover the 5 per cent tax, we are not just taxing the hotel; we are taxing the entire value chain that supports it.
This creates a contractionary effect on local businesses that rely on the secondary spend of tourists. We are effectively shrinking the total economic pie by over-squeezing the largest slice of it.
The missing sunset clause
In fiscal policy, temporary measures have a habit of becoming permanent fixtures. The absence of a strict, legislated sunset clause of 12 months for the TST is a red flag for the business community.
Without a formal commitment to evaluate, audit, and dissolve this tax after a set period, operators are left with no confidence that this is a temporary exigency. It becomes a permanent tax burden, baked into the cost structure of every resort and tour operator in the country.
This creates a chilling effect on future investment, as businesses cannot calculate their long-term ROI when the fiscal goalposts can be moved at the government’s whim.
The path toward a national solution
We must pivot. The Government should engage in a direct dialogue with the industry to replace using the TST for the airline with a broader, national-level mechanism. This could involve a temporary, low-impact departure levy that shares the burden across all travellers, or a debt-equity swap that allows operators to convert their contributions into equity in the airline.
However, it should be noted that Fiji’s departure tax is one of the highest in the world, without any differentiation between citizens and tourists.
While a broad turnover tax mechanism may eventually be a valid and necessary tool to fund overarching national infrastructure that serves the entire country equally, applying it right now to subsidise a single corporate entity sacrifices the immediate sustainability of the tourism sector.
The choice remains in the hands of the Ministry.
Dr Sushil K Sharma BA MA MEng (RMIT) PhD (Melbourne) — World Meteorological Organisation (WMO) Accredited Class 1 Professional Meteorologist is a former Associate Professor of Meteorology, Fiji National University, and Operational Meteorologist and Manager, Climate Research and Services Division, Fiji Meteorological Services. The views expressed are his and not necessarily shared by this newspaper.
