Comment: IMF stabilisation program threatened if Majlis ignores tax bills

The current majority of members in the Maldives Majlis have been cynically irresponsible in their handling of financial legislation.

Though they have found the energy to pass detailed amendments to the Finance Act which threatens to create administrative chaos and undermine the constitutional powers of the executive, they have ignored two tax bills – the Tourism Goods and Services Tax, and the Business Profits Tax.

These two bills are a vital part of the IMF program that stabilises the economy and keeps the country from bankruptcy.

The tax bills have been buried in the ‘Whole of Majlis’ committee for around a year, and it is obvious the members are not interested in passing them.

The sensational phone recordings released this week featured Majlis member Mohamed ‘Kutti’ Nasheed reading out a plan to ‘fast process’ the Financial Act Amendments bill and no-confidence motions, and  “cease all work on the tax bills submitted by the government to the Majlis”.

It is unlikely the IMF and international banking groups will tolerate this situation for much longer without a downgrading of the country’s credit rating, especially now the tax bills’ delay has become associated with high levels of corruption in the Majlis.

The IMF is not a benign charity. It is a hard-nosed organisation quite capable of taking action against countries that take its money and fail to keep their promises and obligations.

Unless a better taxation system is established in the Maldives, international bankers may pull the loan plug, and the public sector and lower income groups in the population will both experience job losses and extreme financial hardship.

The blame for this potential economic disaster will rest squarely on the Majlis members who the people elected in 2009.

The latest IMF report for Maldives criticises the high public sector wage bill that is “very high by international standards”, and the low tax rate for its tourism sector, which the IMF says “remains well below international standards”.

Maldives’ hotel tax rate is one of the world’s lowest, well behind India, Sri Lanka, Philippines, Indonesia, and other comparable tourist destinations such as Dominica, Fiji, Barbados, Mauritius, Costa Rica, Vanuatu, Bahamas, Seychelles, Tahiti, and Jamaica.

Most of the profits from the tourism sector go to wealthy men and families who are often members of the Majlis and/or owners of media companies. The dreaded word ‘tax’ is rarely heard in the political discussion programs that dominate Maldives’ radio and television. Print and internet website news organisations also avoid the subject of tax. Serious informative articles on economics and business are impossible to find.

Significant government tax revenues will undermine the present system of patronage and corruption that permeates Maldivian society. People’s loyalties would shift away from wealthy men towards the government, which will be able to provide pensions, subsidies, adequate salaries and health care. These are the foundations of a just and fair society.

The Majlis majority who are refusing to pass tax legislation are acting against the best interests of the people and threatening the independence and national security of the country.

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Single private borrower lowers Maldives credit rating, and wants to borrow more: Assad

The country’s ability to borrow money has been made more difficult by a Majlis member borrowing a large sum of money and lowering the country’s credit rating, said the state minister for finance Ahmed Assad at the President’s Office press conference yesterday. Now that person has made a request to the government to give him a ‘letter of no objection’ to borrow a further large sum, he said.

Assad refused to name the Majlis member at the conference but it is widely assumed in the Maldivian media that the Majlis member is Gasim Ibrahim.

The European Investment Bank is complaining that the country is already in default, said Assad, and because of that complaint, the Maldivian government is having difficulty borrowing money and the country is in serious financial difficulties. It is jeopardising the government’s ability to borrow money for important projects like housing, he said.

The Majlis has left a tax bill in committee for a whole year, along with around 30 other bills which the executive government has submitted, said MDP MP Eva Abdulla last night on TV Maldives’ Rajje Miadhu (Maldives Today) current affairs program. These bills were designed to provide services to the people which were promised during the presidential election, she said, and instead of doing anything to pass the bills, the opposition has been amending existing legislation to remove the powers of the president.

The IMF has set up a program to help the government out of economic crisis, and an essential part of that program is to reduce expenditure and increase revenue, Eva Abdulla explained. The Tourism Goods and Services bill and the Business Profit Tax bill are designed to increase government revenues, she said, and both bills have been sitting in the Majlis committee for over a year and no progress has been made in passing them. The Majlis sub-committee considering the two bills is chaired by the leading businessman in the country [Gasim Ibrahim], she said.

Gasim also the head of the permanent Majlis committee for economic affairs.

This week, Gasim Ibrahim and another Majlis member, People’s Alliance party leader Abdulla Yameen, were arrested on charges of treason involving bribery of Majlis members. The Criminal Court ordered that Yameen, the younger brother of former President Maumoon Gayyoom, be presented in court by the police after midnight less than 6 hours after his arrest. The High Court yesterday endorsed the Criminal Court order. Both men were released from police custody by the Criminal Court and placed under ‘house arrest’ with permission to attend Majlis sittings and committee meetings. Gasim Ibrahim’s swift hearing at the Criminal Court took place without any media presence.

Abdulla Yameen is on the permanent Majlis committee for financial affairs which is headed by his party’s deputy leader Ahmed Nazim who is the deputy speaker of the Majlis. Yameen is also head of the permanent Majlis committee for national security.

Last night on Gasim’s Villa TV station, Yameen appeared and said he was confident that he would win the 2013 Presidential election competing against current MDP President Nasheed and the DRP’s Thasmeen Ali. Yameen also criticised the government’s economic policies and said the current administration had borrowed more than US$500 million in the last 18 months.

What is clear is that both Gasim and Yameen will have to pay significant taxes if the tax laws are passed, and therefore they are delaying the bills, said Eva Abdulla on TVM last night.

Gasim Ibrahim owns resorts and has an extensive businesses and media interests. Yameen also has widespread business interests in the Maldives and was a long-serving minister during President Gayyoom’s 30 year rule.

The present Maldivian government’s ministers resigned en masse in a ceremony held at the President’s Office earlier this week, before Gasim and Yameen were arrested. The ministers, who were appointed by the president, said that they were unable to function due to restrictions placed on them by Majlis amendments to existing administrative and financial legislation.

A press release by Gasim’s Jumhooree party says the arrests were designed to intimidate its leader and Abulla Yameen, and that the resignation of the ministers, followed by the two Majlis members arrests, were contrary to ‘the spirit of the rights granted to them by the constitution’, and designed to place undue influence on the Majlis.

“We know that there are big businessmen and corruption in the country,” said the former foreign minister Dr. Ahmed Shaheed at yesterday’s President’s Office press conference. “For a young democracy, corruption is the biggest enemy. Corruption is present in every country. Democracy will only be strengthened when institutions that are supposed to fight against corruption are strengthened. Maldives is at that stage. The question we have to ask is if the current institutions don’t help us, then how can we do this?” Dr. Shaheed said.

“Maldives is in this economic crisis because corruption has been widespread. Particularly because the previous government has looted the country and because they have given priority to their personal interests rather than to the nation,” he said.

Democracy can be strengthened only when looters of the country receive appropriate punishment, Dr. Shaheed added, and the government has to take urgent action against corruption.