The country’s Economic Development Minister has called for a greater focus on introducing new “direct revenue” streams like taxation to the country to try and balance national income even as the government reports an increase in income.
Mahmood Razee said he believed that increased government earnings between January and March 2011 should be seen as an encouraging development in the country for both public and private finance, with initiatives like the tourism Goods and Services Tax (GST) introduced in January expected to be rolled out across other national industries.
However, he stressed that more cash generating measures would be needed by the state to balance the country’s books.
The claims were made as the Maldives Inland Revenue Authority (MIRA) recorded a 59 percent increase in government first quarter income on the back of new initiatives like the tourism GST.
The Maldives has come under huge pressure in recent years from financial institutions like the International Monetary Fund (IMF) to try and reduce extensive state spending, resulting in a large deficit between income and expenditure that the government’s Finance Ministry have claimed to be trying to address.
While preliminary figures had pegged the 2010 fiscal deficit at 17.75 percent, “financing information points to a deficit of around 20-21 percent of GDP”, down from 29 percent in 2009, the IMF has reported.
Razee claimed that the increases in government income was a step towards more balanced expenditure as the MIRA revealed that Rf947m was generated during the first quarter of 2011. These earnings were up by 21 percent on predicted incomes for the year and 59 percent over revenues taken during the same period in 2010. However, earnings from the tourism GST introduced from January 2011 onwards were not in place back in 2010.
Tax revenue over the quarter rose by 81 percent, aided mainly by the tourism GST, which generated an estimated Rf351m in February and March alone, up one percent on expected earnings, according to the MIRA.
Of these tax earnings, the financial report stated that Rf82m had been collected in the local currency, while the remaining Rf864m was collected in US dollars (US$67m).
The MIRA report added that government earnings from initiatives such as the switch of a tourism lease rent to a tourism land rent had seen non-tax revenue increase by 46 percent over the period, despite a 28 percent decline in royalties after recent amendments to the Fisheries Sector.
“With the change from tourism lease rent to tourism land rent, the revenue from [this amendment] has increased by 7 percent,” the report stated. “Additional revenue of Rf 146m has been received during this quarter from Resort Lease Period Extension following to the second amendment made to the Tourism Act.”
More Work
According to Razee, despite the increased revenue, more sources of income, particularly in terms of foreign currency, were needed to offset budgetary concerns. This apparent need comes in light of a lack of US dollars being made available through Maldivian banks that this month saw a long standing Rf12.85 peg on the exchange rate controversially being amended within 20 percent above or below the figure.
“The solution is to look to more direct forms of revenue like the general GST, though there is still some way to go with work in trying to balance revenue with the expenditure side,” he said. “Additionally, when we look to taking [state] loans they will need to be able to build greater productivity and more investment into the economy.”
With the Finance Ministry aiming to introduce a general GST system beyond services and goods provided to holidaymakers, Razee believed that government’s recent experience with taxing tourism income had helped bring a much great understanding of the true state of the country’s finances.
“Obviously with the GST in place, we understand much better the exact tourism receipts being generated,” he said. “Without them, it was much harder to fully understand the revenues being generated.
Razee claimed that the implementation of the general GST tax would also require the private sector to be more “professional” in their accounting, in theory ensuring wider industry benefits in the long-term.
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Whilst looking at increasing the cost of an already overly large government that seems to achieve less the bigger it is, there are some other fiscal measures that might make Male' at least a healthier place to live.
Frankly we live way beyond our means, with a balance of payment way out of control. We employ thousands of foreign labourers whilst many of our youth sit doing nothing or are 'waiting' for the job that comes up to the standard of their degree or masters. We are rapidly getting to the point of over qualification, where there will be the highest qualified unemployed per capita in the world. We desperately need to pull our fingers out and start to think about the future of vocational training and the noble arts of plumbing, bricklaying, electrical expertise and a whole host of other artisan gaps in Maldivian skill sets. We let this drain of our currency bleed out as quick as the foreign investments that are the backbone of our economy, that is to say our so called Tourism industry, not ours in the main really.
Our youth buzz around dangerously on motorcycles getting less fit and more polluted by the second, using heavily subsidised fuel which needs to be taxed far higher as well as the machines themselves, to balance our burgeoning defecits.
Then the greatest pollutant of them all, cigarettes, another major revenue winner in so many other countries, balanced with better all round health, especially when eating out.
But no we are going to pay our ineffective government and Majlis and Judiciary more instead it seems. Will they work harder and more honestly? I leave that one up to everyone to judge, I just wish we would wake up and realise the hypocrisy is almost at breaking point.
WOW economist!! You are spot on.
I don't think overqualification is hardly a problem in the Maldives. It's the exact opposite. The average grades at major exams are very poor by international standards.
The government's priority should be in ensuring
(1) Reducing expenditure
(2) Increasing productivity
(3) Investment in the country's capacity to generate export earning industries.
These are easier said than done! I'm sure Razee and others are fully aware of these issues.
However, there still seem to be a trend towards "mega" projects, a hang over from Gayyoom's era. Instead, the focus should be on small scale value added industries that we can grow and provide export earnings. This is doable right now in a number of areas. Just need to get off your lazy backsides!
I wish as the economic minister razee had given more concrete ideas as to what plans the government has to increase usd earnings into the country other than milking the tourism industry dry. Does razee have no plans to expand the income base.
Dear Aishath, Ahmed Bin Addu Bin Suvadheeb,
Razee and others are nopt aware of the economic situation of our country...i mean who is this razee guy..he knows nothing about ecnomy he never even workrf in the economic field...and Razee has no plans for anything except to increase their and MDP's riches...they dont give a damn about us..next thing we willknow is that we are all being taxed to the skin of our teeth...and they will be living of the money....I dont feel happy at all paying taxed of my hardwork..to a bunch of corrpt guys
@Nars on Mon, 25th Apr 2011 7:07 AM
I had my doubts on capacity and capabilities of Minister Razee. And when asked, my friend explained to me.
Mr Razee completed his studies in Aviation, and as such, he now has a birds eye view of every aspect in the Maldives, be it transport, economics, warfare, aeronautics, education, finance, fishing...Which you can confirm by the variety of works our President assigns to Mr Razee.
Since then I have decided to recommend aviation as the one and only field, that all Maldivians need to excel on.