Category:

Government underestimating tourism economy by more than US billion, claims economist

The Maldives has significantly underestimated the value of tourism to the local economy by over a billion dollars, according to a report by economics lecturer and Assistant Manger of the Maldives Monetary Authority (MMA)’s Monetary policy and Research Division, Ibrahim Ameer.

In the first month following the introduction of 3.5 percent Tourism Goods and Services Tax on the tourism sector, the Maldives Inland Revenue Authority (MIRA) collected US$7.2 million from 800 of the 871 registered tax payers.

“This means the whole tourism industry’s revenue (market value) would amount to approximately US$210.0 million for the month of January and approximately US$2.5 billion for the whole year,” observes Ameer.

In comparison, the government’s official figure for the total market value of all goods and services produced in the country – not just tourism – is US$1.5 billion.

In his report, Ameer recalculates the budget deficit based on updated GDP figures and concludes that the deficit sits at nine percent, “as opposed to 17 percent of GDP in 2010 as per government authorities.”

“I suspect these underestimated figures are used by the authorities to prolong the preferential treatment Maldives has and in some cases continues to receive as a [former] Least Developed Country (LDC),” Ameer surmises, suggesting that “ our country’s problems are primarily a case of the state’s inability to collect revenue through taxation rather than a budget deficit.”

“It should be agreed that as the country marches towards full democratization, with new independent statutory institutions, local and atoll councils and increased civil service salaries, the country needs to rethink it tax policy,” Ameer states.

In an agreement reached with the International Monetary Fund (IMF) last week, the Maldives has committed to:

  • Raise import duties on pork, tobacco, alcohol and plastic products by August 2011 (requires Majlis approval);
  • Introduce a general goods and services tax (GST) of 5 percent applicable to all sectors other than tourism, electricity, health and water (requires Majlis approval);
  • Raise the Tourism Goods and Services Tax (TGST) from 3.5 percent to 6 percent from January 2012, and to 10 percent in January 2013 (requires Majlis approval);
  • Pass an income tax bill in the Majlis by no later than January 2012;
  • Ensure existing bed tax of US$8 dollars a night remains until end of 2013;
  • Reduce import duties on certain products from January 2011;
  • Freeze public sector wages and allowances until end of 2012;
  • Lower capital spending by 5 percent

Comparison figures Ameer provides for corporate, income and GST/VAT tax regimes regionally and around the world, show the proposed figures for the Maldives are substantially lower.

India, for example, has a 25 percent business profit tax (BPT), individual income taxes of 0-30 percent, and a GST of up to 12.5 percent. Pakistan has a 35 percent BPT, 7.5-35 percent income tax and a GST of 17 percent. Barbados, another tropical island tourism destination, collects a BPT of 25 percent, income tax of 25-25 percent and a GST of 15 percent.

In his conclusion, Ameer argues against substantial cuts of the Rf12 billion state budget, noting the impossibility of reducing that to match the government’s present RF7 billion in revenue, and presses for the careful introduction of taxation.

“We could save some expenditure through cutting waste, prioritising projects and eliminating corruption. On the other hand, we must all agree that in certain areas wage and salaries given are very low compared to many countries,” he suggests.

As a result, “it is difficult to retain skilled and highly educated people in the country. This is why we see so many bright Maldivians leaving the country to work abroad. In the education sector, where the future of the country is molded and where the bright and the best are needed to teach future generations, the remuneration is pathetically low. The average wage for leading teacher with a Master’s degree is Rf 8354 (US$540).”

“The academic and education sector should be highly competitive and more rewarding if we are to build a better future and save ourselves from the sort of ‘brain-drain’ that we cannot afford. The situation is more or less the same with the healthcare sector of this country, with many of the brightest doctors and nurses opting for work abroad in countries as diverse as New Zealand and Canada,” Ameer observes.

He notes that the disproportionately high rents in Male’ swallowed 70-80 percent of the income of many residents in the city, “and as a result, disposable income is lower than it should be to encourage a more competitive market place and economy.”

“Because only Male’ is equipped with all the necessary facilities, like education and health care, more than one third of the population is living here. This creates irreparable social and economic damage,” Ameer claims.

Much of the visible development in Male’ he claims is the a result of a “coffee-shop bubble, a smokescreen that is bound to burst dragging the economy into depression.”

“To achieve sustainable development we need to see past supermarkets, boutiques and coffee shops in every corner,” he suggests.

“The wealthy need to realize that it is more lucrative to have businesses that decline, over our dependence on imports. The present business model increases imports and puts more pressure on the foreign exchange. It only widens the disparity between the rich and the poor when there is a negative impact on the economy.”

Read the full report

Likes(0)Dislikes(0)

Elections Commission validates Thasmeen’s DRP leadership

The Elections Commission (EC) has reportedly ruled against claims by dismissed Dhivehi Rayyithunge Party’s (DRP) leader Umar Naseer that the appointment of the party’s leadership last year was invalid after it failed to submit official paperwork within a 15 day deadline.

Haveeru reported that the party’s leadership had been deemed valid by the EC after discussions with local legal experts, despite the DRP’s failure to comply with the Regulation of Political Parties and officially notify the commission of changes to its leadership.  The party was required to submit official documentation  and minutes of a congress held in February 2010 where Ahmed Thasmeen Ali was appointed as successor to Maumoon Abdul Gayoom as head of the DRP.

Earlier this month, EC Vice President Ahmed Hassan Fayaz told Minivan News that although he was aware of a clause in the party’s existing regulations relating to supplying official minutes to the commission, the EC did not have authority to strip a party leader of his position.

Fayaz claimed additionally that Thasmeen’s appointment at the congress, which was supported by Gayoom before he became openly critical of his successor earlier this year, had been witnessed by hundreds of party delegates as well as being covered by local media – ensuring that it was a well-documented decision.

According to Haveeru, Elections Commissioner Fuad Thaufeeq said this week that Thasmeen’s leadership of the DRP had been deemed valid following consultations with the Premier Chambers law firm.

The EC head was quoted in the report as deciding to accept official documents and minutes relating to the appointment of Thasmeen at last year’s DRP congress, despite the official 15 day deadline having long passed.

DRP MP Ahmed Nihan, supporter of the Z-DRP faction of the party that is critical of Thasmeen’s leadership, said earlier this month that he believed the deadline for submitting the leadership paperwork was not just an administrative error and had serious implications for the party.

Nihan, citing a SunFM report, claimed that under the EC’s own mandate, details and a recording of the national congress held by the party to approve its new leadership needed to be sent to the regulatory body within 15 days of the event being held.

The DRP MP claimed this still had not happened as of last month, representing a “clear breach” of party regulation by its leader.

Likes(0)Dislikes(0)

Sri Lanka to ban visa on arrivals for all except Singapore, Maldives

Sri Lanka will withdraw visa-on-arrival facilities in August for all visitors to the country except those from Singapore or the Maldives.

Foreigners wishing to visit Sri Lanka will be required to pay for a visa online, or visit a Sri Lankan mission.

A statement from the Sri Lankan government said tourists without internet access would need to apply for visas through private agencies.

The decision has raised concern in Sri Lanka’s booming tourism sector about the potential impact on arrivals.

Likes(0)Dislikes(0)

ADB head urges Maldives to focus on deficit

President of the Asian Development Bank (ADB) Haruhiko Kuroda has said that while the Maldives’ climate change goals are commendable, the government should focus on improving fiscal management.

“ADB is pleased to support the Government’s reform measures to address the large fiscal deficit. Recently announced retirement incentives would reduce fiscal expenditure in future. Private sector development, especially promotion of micro- small- and medium-sized enterprises, will further support the Government by creating job opportunities, especially in the outer atolls,” he said.

During a two day visit to the Maldives last week, the ADB President made field trips to the ADB-assisted Malé Commercial Harbor and Malé North Harbor projects, and addressed students of Maldives National University during his visit.

The Maldives, which joined ADB in 1978, has received loans, grants and technical assistance of $196 million, which support infrastructure, capacity development and expansion of the private sector.

Likes(0)Dislikes(0)

“A demoralised opposition, even divided, is not making things easy for the government”: Daily Mirror

A legislative deadlock involving the Executive and Parliament on the one hand, and the Executive and the Judiciary on the other, both leading to a serious and a series of constitutional crisis kept Maldivian politics and politicians on their toes for most of 2010, writes Sathiya Moorthy for Sri Lanka’s Daily Mirror.

“Now in the third year of its five-year term, the government of President Mohammed Nasheed ‘Anni’ has tied itself down in a fiscal situation through an IMF-driven ‘managed float’ of rufiyaa, the local currency. The government says that the consequent steep increase in prices was unavoidable but would stabilise within three months.

“A demoralised opposition, even when remaining divided, is not making things easy for the government. Their protest rallies drew crowds for a few days in a row with the police having to disperse them forcibly. Though the government blamed them on the opposition, particularly the divided Dhivehii Rayyithunghe Party (DRP) founded by former President Maumoon Gayoom, sections of the local media said apolitical youth were seen in good numbers.”

Read more

Likes(0)Dislikes(0)

Cabinet moves ahead with Nexbis border control deal despite ACC objections

The Maldivian cabinet has reportedly decided to move ahead with implementing a border control system designed by Malaysia-based Nexbis after overruling concerns raised by the Anti-Corruption Commission that halted the deal earlier in the year.

Press Secretary for the President Mohamed Zuhair told newspaper Haveeru today that after two weeks of discussions, the cabinet had decided to move ahead with the Nexbis agreement originally signed back in October 2010. Zuhair was unavailable for comment on the decision when contacted by Minivan News.

The Nexbis deal had been bought to a halt soon after being signed as the ACC ordered a halt on a contract between the Department of Immigration and the Malaysia based mobile security firm over claims that were instances where corruption may have occurred. The ACC order was upheld by President Mohamed Nasheed in January, who requested that the Department of Immigration and Emigration adhere to the ACC’s guidance until it rules over the next step for the project

The ACC’s claims were vehemently denied by Nexbis, which announced days later that it was consider taking legal action against unspecified parties in the country that it alleged had “wrought irreparable damage to [the company’s] reputation and brand name” alleging attempts to halt the deal were “politically motivated” in nature.

According to Haveeru, ACC Deputy Commissioner Muawwiz Rasheed claimed following the cabinet’s decision today that only a Maldivian court could invalidate the decision to halt the project – even one with the reported support of the country’s executive arm.

“It’s mandatory for the department to follow our orders. The investigation is ongoing,” he was quoted as saying in the paper.

Likes(0)Dislikes(0)

IMF approves three year programme as Maldives commits to new tax regime

The International Monetary Fund (IMF) has given preliminary approval for a three year economic programme in the Maldives, after the government agreed to “a package of policy reforms that will help stabilise and strengthen the Maldives’ economy.”

The IMF has spent two weeks in the Maldives meeting with President Mohamed Nasheed, Minister of Finance and Treasury Ahmed Inaz, Governor of the Maldives Monetary Authority Fazeel Najeeb, senior government officials, donors and the Majlis.

“The Maldives’ economy is growing robustly on the back of strong tourist arrivals, but it continues to suffer from large fiscal and external imbalances,” the IMF observed in a statement.

“The Maldives has recently faced challenges with respect to inflation, but there is no indication that inflationary momentum has risen. The introduction of the exchange rate band was a welcome step, but it needs support from a tightening of fiscal and monetary policies. The mission and the authorities agreed that such a tightening of policies would be important to promote fiscal and external sustainability, continued growth, and low inflation.”

The IMF agreed to a “medium-term” policy from the government to reduce its budget deficit “substantially”, “both through additional revenue measures – which would require the support and approval of the Majlis – and through expenditure restraint.“

“The authorities have introduced an initial voluntary separation plan for government employees and are continuing their detailed analysis of the public service, with an eye toward right-sizing government over the medium term,” the IMF noted.

“Monetary policy would be tightened to complement fiscal adjustment, counter inflation, improve confidence in the rufiya, and support international reserves. Gradual accumulation of international reserves, along with the fiscal space created through debt reduction, would reduce Maldives’s vulnerability to external shocks. Financial sector reforms will support the soundness of the banking system and increase the depth of the foreign exchange and financial markets.”

The IMF observed that if approved by the IMF’s Executive Board, the Maldives’ subscription to the program would likely encourage other key donors to contribute further financial support.

Speaking at a joint press conference held by the Finance Ministry and the Maldives Monetary Authority (MMA), Finance Minister Ahmed Inaz acknowledged that previous concessions made by the government with the IMF – such as reducing the public sector wage bill, “didn’t materialise because some of them were not politically possible in the country at the time.”

“But given the current situation we are hopefully the proposed medium-term measures we are proposing will be possible when [parliament] sessions resume.”

According to Inaz, under the new IMF program the Maldives has committed to:

  • Raise import duties on pork, tobacco, alcohol and plastic products by August 2011 (requires Majlis approval);
  • Introduce a general goods and services tax (GST) of 5 percent applicable to all sectors other than tourism, electricity, health and water (requires Majlis approval);
  • Raise the Tourism Goods and Services Tax (TGST) from 3.5 percent to 6 percent from January 2012, and to 10 percent in January 2013 (requires Majlis approval);
  • Pass an income tax bill in the Majlis by no later than January 2012;
  • Ensure existing bed tax of US$8 dollars a night remains until end of 2013;
  • Reduce import duties on certain products from January 2011;
  • Freeze public sector wages and allowances until end of 2012;
  • Lower capital spending by 5 percent

“This is not about how much we get from IMF or donor agencies, this is something we been advocating, even if we have not been heard,” said Inaz. “We have always been saying that the deficit should be balanced with additional revenue measures.”

Cutting the deficit by sacking state employees – current 75 percent of the state budget – was not possible at the moment, he said, “although we are trying our best with redundancy payments.”

“Hopefully 1350 [voluntary redundancies will bring us Rf101 million in savings next year, but that not enough. State revenue has to increase with the new constitution. We hope the Majlis will approve these bills, and we hope much of the burden of the deficit will be released in 2012.”

Governor of the MMA Fazeel Najeeb acknowledged that “there will be some eyebrows raised and some reservations on the measures – this is inevitable in any country changing its taxation regime.”

“There are instabilities and I hope these will be short term. But I think what we are doing is in the interest of the economy and will bring it out of the mess it is in. I think it is necessary that we act together now,” Najeeb said.

The IMF package, he noted, represented “a joint commitment by the Ministry of Finance and the central bank: a state affair in the interests of the economy and the country.”

“Everybody in the country realises and recognises that there needs to be a change in the status quo. The status quo is a fiscal stance that is unmanageable.”

Asked whether he felt the new taxes were likely to be passed by parliament, “I think when it comes down to the details of what and how the legislation takes shape, that should be left to Majlis. What I can say is that status quo needs to change, and I don’t think this can be only reduction [in expenditure]. There needs to be a considerable amount of income increase. A combination of revenue as well as expenditure.”

Until recently the government was publicly calling for Najeeb’s dismissal by the Majlis due to a perceived lack of cooperation on tackling the currency crisis facing the country.

Asked if the IMF deal represented a new era of cooperation, Najeeb said the MMA “is always willing to cooperate with the government. There are issues on which we professionally disagree, but that shouldn’t be interpreted as lack of cooperation.

“We will continue to cooperate as we have done before, and whenever we are called upon to participate in press conferences such as this one, we will do it. We will leave it at that.”

State Minster for Finance Ahmed Assad said that despite media efforts “to sensationalise” the relationship between the MMA and the government, “we are not going to fight in public. Any fight will be within the walls of the MMA, or the Ministry of Finance. Because these are technical policy issues on which we don’t agree.”

“The MMA is not elected by the people and is not responsible [for the economy] – it is the President who heads the government and therefore the responsibility falls on the government to point the economy in the right path,” Assad said.

“Therefore whatever we do, the MMA is there to support us. If we’re wrong they’re there to criticise us. If we choose the right path their sole goal is to assist us. There are times that we disagree but that is purely professional. We should not have a hostile attitude towards this.”

Assad observed that even with the new taxes proposed by the government, the Maldives was still had the most generous tax system in the region – even compared with other island nations, and neighbouring countries such as India and Sri Lanka.

“We can’t say taxes are exorbitantly high and will bring total destruction to the industry,” he suggested.

The President’s Press Secretary Mohamed Zuhair meanwhile said the agreement with the IMF represented “a vote of confidence” in the government’s handling of the economy.

“We inherited huge amounts of debt and millions of dollars in unpaid bills from the former administration but have nevertheless managed to cut the budget deficit in half, bring down inflation and raise government income to put our economy on a steady path to prosperity,” Zuhair said.

Likes(0)Dislikes(0)

TEAM calls on government to hasten introduction of minimum wage at Rf5000

The Tourism Employees Association of the Maldives (TEAM) has urged the government to implement a minimum wage, to address a growing gap between the rich and poor.

“TEAM believes that the most important thing to do in order to change the current situation of all persons working in the tourism industry is to implement a minimum wage,’’ said the organisation.

‘’A minimum wage is also important to avoid the potential bankruptcy of small and medium businesses and to eliminate the differentiation between the rich and poor.’’

TEAM urged the government to conduct a fair survey and to determine an adequate minimum wages, “instead of only listening to few influential big businessmen.’’

TEAM claimed the minimum wage for those working in the tourism sector should be at least Rf 5000 (US$325) per month.

Vice President of TEAM Maurrof Zakir said that Rf5000 for resort workers was determined after taking into considering the GDP of the country, salaries of civil servants and the amount of money tourism resorts make per month.

‘’Usually a tourism resort makes US$2-3 million every month,’’ he said.  “But only US$200, 000 at the most is the amount spent on wages. Our estimates do not show that the tourist resorts will suffer any loss by paying their staff a minimum wage of Rf 5000 per month.’’

He also recommended the government  set the minimum wage differently for each sectors.

In last week’s radio address, President Mohamed Nasheed promised that the government would set a minimum wage this year to ensure a decent living.

In January this year, a bill governing the minimum wage of people employed in the Maldives was sent to parliament by MDP Parliamentary Group Leader ‘Reeko’ Moosa Manik.

“It is important for everyone working in the Maldives to be certain of the minimum wage that can be given to them – that is a right of every citizen. That’s why this bill is being drafted,” Moosa said.

Press Secretary for the President Mohamed Zuhair did not respond to Minivan News at time of press.

Likes(0)Dislikes(0)

Criminal Court again orders release of high profile drug case suspect, despite High Court overruling decision

The Criminal Court has last night summoned and ordered the release of a suspect in a high profile drug case, a day after the High Court invalidated a letter sent by the Criminal Court to the police asking to release him under house arrest.

The Criminal Court first asked  police to keep Abdul Latheef, of Gnaviyani Atoll Fuvamulah, in detention as determined by the Home Ministry, until his trial reached a conclusion. However the Criminal Court later sent a letter to the police changing the court’s first decision and asking police to switch Latheef’s detention to house arrest.

The police then appealed at the High Court to invalidate the letter. The High Court judges determined that the order in the letter was not consistent with the applicable laws concerning detention, and overruled it last Tuesday.

Latheef was arrested last year in December, as he was about to drive off in his car after loading some vegetables into the trunk.

Police officers attended the area, stopped his car and unpacked the loaded items in his presence and discovered 1083.4246 grams of illegal narcotics containing the substance Tetrahydrocannabinol (found in cannabis).

Police Sub-Inspector Ahmed Shiyam said Latheef was presented to the court prior to the custodial deadline upon a request by the Criminal Court.

‘’We have not noticed anything unusual about it,’’ he said. ‘’The court just requested police to summon him and we did, then the court ordered his release and so we released him.’’

Likes(1)Dislikes(0)