The government has submitted a bill to parliament calling for the Tourism Goods and Services Tax (T-GST) to be increased from 8 to 15 percent, effective immediately.
The bill was submitted by Dhivehi Qaumee Party (DQP) MP Riyaz Rasheed last week on behalf of the government.
A T-GST of 3.5 percent was first pushed through parliament by the former government in 2011, with planned increases to 6 percent in 2012 and the current 8 percent in 2013.
Prior to the introduction of the T-GST, the primary sources of state income from the tourism sector included resort rents, import duties, and a flat eight dollar a night ‘bed tax’.
During the first month following the introduction of the T-GST, the government collected US$7.2 million from 800 of the newly registered 871 tax papers, a figure that revealed the Maldives had been underestimating the total size of its main industry by a factor of three.
Economic crisis
The proposal to increase the tax comes as the Maldives faces increasingly dire economic circumstances.
Finance Minister Abdulla Jihad revealed in April that the government had exhausted its annual budget for recurrent expenditure (including salaries, allowances and administration costs) in the first quarter of 2013, and announced the suspension of all development projects.
The State Bank of India’s refusal to roll over loans at the start of the year has seen central bank reserves at the Maldives Monetary Authority (MMA) “dwindle to critical levels”, as noted by the World Bank, to barely a month’s worth of imports.
The State Electric Company (STELCO) – the country’s main supplier of electricity to inhabited islands – meanwhile revealed this week that the government had failed to pay electricity bills to the tune of MVR 543 million (US$35.2 million), and warned Parliament’s Public Accounts Committee in a letter that it faced cash flow problems and an inability to roll out new projects as a result.
T-GST rise contentious
Tourism industry figures have previously warned that a sudden increase in T-GST would have an immediate effect on the industry’s bottom line, as many resorts are locked into year-long supply and pricing agreements with tour operators.
An overnight near-doubling of the tax to 15 percent would have “serious ramifications on tourism and the Maldivian economy,” warned one resort manager.
“Most wholesalers will not accept price increases mid-contract irrespective of what clauses we put in a contract, as laws within the EU prevent this. Hence, this will have to be absorbed by the resorts,” he explained.
“I am aware that many resorts are struggling financially and this may be enough to put them over the edge. It will be very difficult to attract much needed foreign investment when the government continues to give these signals,” he added. “Why hamper and reduce demand to a destination that is already struggling to attract its core and traditional markets?”
The resort manager said that it was unreasonable to expect the resort industry to foot the bill for the state’s financial irresponsibility, “considering there have been limited efforts within the government to reduce its expenses. [The proposed tax increase] is short term thinking that will lead to a major default within the Maldivian economy and industry, if this proceeds.”
“What continues is a large bureaucracy that makes it as difficult as possible for tourism to provide high end service to its guests in order to maintain our positioning [in the market],” he observed.
“What is basically required is that these slow and lethargic government departments to go through a productivity and efficiency program. Make the processes more efficient, make civil servants accountable for productivity targets, reduce the government workforce and increase the percentage of Maldivian workers in resorts,” the manager suggested.
The issue here is that the resorts will need to cut costs and increase efficiency to counteract this. This may hamper guest service, product enhancements and refurbishment, and staff benefits which is again detrimental to the industry as a whole. The Maldives is a premium destination with premium levels of service and this tax increase would hamper this positioning. The Maldivian people will need to expect cost cutting and in some aspects retrenchments.”
New tax fatwa
Prior to the submission of the government’s proposed increase to the T-GST, local media reported that the Fiqh Academy had issued a fatwa (an Islamic ruling) prohibiting the government from levying taxes of any sort except under exceptional conditions.
Announcing the Fiqh Academy’s ruling in a statement on May 22, the Islamic Ministry noted that taxation was only permitted under Islam in certain circumstances.
“Tax can be taken from citizens to fulfill their basic needs, and only up to the amount required to fulfill these needs in cases where the state does not have enough money [for this],” the statement read.
According to local media, the fatwa requires that any tax money collected be “invested fairly and according to Islamic principles”.
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Try collecting the taxes of those resort owners who sit in government that owe millions already first before increasing the tax for those that already pay.
The Islamic Republic of Dhivehistan is hungry for infidel dollars and is trying to get them via kafir a taxation system. The infidel industry is being squeezed despite the mullah's unwillingness to pray for it in the Friday propaganda speeches. What will the pork eating alcohol drinking resort tycoons make of this? Will they join hands with the mullahs for the sake of the fortress of Islam and the banner of Tawheed? Fight! Fight! Fight over money and power! Lol.
Hahahaha..... This is hilarious!.....Your economy is about to implode......No one's going to help you hahahahaha
.....you retarded Neanderthals will sink while you're broke!
BRING ON GLOBAL WARMING!!!
Dhivehistan indeed!
"What is basically required is that these slow and lethargic government depart to go through a productivity and efficiency program..."
Well said. It was just yesterday that Hassan Saeed openly admitted that his two boys in the regime are there for no purpose other than to warm seats on behalf of his party. What an absolutely ridiculous situation. Hassan Saeed has never been elected to any position but he wields enough power to guarantee two fat salary positions within the regime.
What has those two clowns contributed to the Maldives? These are just two examples. Hundreds of political appointees are getting paid fat salaries and contributing sod all! Sack the lot, and reduce taxes instead of increasing it!
Almost everywhere else in the world, apart from North Korea and a few other authoritarian regimes, we see governments trying to reduce their size and increase efficiency. Maldives is still coasting along similar lines to North Korea.
I'd be walking upside down the streets if this bill passes through parliament!
In most countries the tax money is spent on infrastructure, education, healthcare and other endeavours which benefit the society.
Here we are collecting tax to pay salaries of people who do not work, do not contribute and most importantly whose labour is not needed.
It's better to have a collapsed government, would teach all the leeches, from the political class to the civil service, a valuable lesson in work ethics.
One thing only : make the rich people pay income tax.
Bear to Miss Bollyboobs... Be careful what u wish for' ... arid n landlocked, the searing heat, the dust in ur orifices....
That coup was very expensive!
I totally agree with the resort manager's remarks on the governments unreasonable expectation that the resort industry bails them out of the prevailing financial crisis.
We all know this government failed in all aspects, chased away foreign investments and kicked out the only country that could support us in times of hardships.
AUSTERITY MEASURES, a phrase not understood in Maldives, but may be the only option. It simply means, "policy of reduced government spending. An economic policy by which a government reduces the amount of money it spends by a large amount". How?
a) Reduce government workforce maybe by 30%
b) Reduce political appointee jobs by 80%
c) Reduce expenditure on projects that will not generate any immediate income
d) Reduce foreign workforce of (unprofessional categories) by 80% and force Maldivians to take over and be more responsible
d) Tax all income (salary, wages, bonuses) of every working soul (foreign or local)
e) Control the movement of foreign currency from Maldives to other countries
f) Ban Western Union and Moneygram for wiring money out. Foreign currency should be handled exclusively by banks.
g) Reduce income of MPs by at least 40% as 90% of these lawmakers are unproductive, and never help their own constituencies
There are so many ways but surely many people will be affected. YES, it is time and I admit I will be one of those who will suffer, but better have a small productive working force, and responsible government. We dont need smart phone addicts, coffee freaks, extravagant teenagers and a society that never thinks tomorrow.
Isn't it a shame for a government to ask the public for Rf.20 for health fund? what a joke! Where is the Mosque fund? Tomorrow we may be asked for Garbage fund, and yet millions are spent on politics and gangs!
Austerity is not the solution. Just take income tax. Make it hit the richest the harest. End of story for govt income issues.
But of course, govt is controlled by the richest handful so it's not like that's ever going to happen.
@annon and eliminating unnecessary bureaucracy, ridiculously large payments for head politicians (ie 80,000 plus for 77 useless parliament members, guys like the mpl ceo earning 132,000 etc etc)
will help greatly as well
Is it possible for the Maldives to increase its earnings ??.All you have is a small fishery,and a large tourism industry.The fishery is running at a maximum,with little or no hope of improving,and the tourism industry is starting to fail,due to the costs..The fishery has no chance,but the tourism side could be your 'life-saver'simply by reducing prices and doubling the turnover.Incresing taxes will reduce the visitor numbers and defeat the object..Your country is the same as yourself>>you can only spend more than you earn,for a short length of time,before you become bankrupt.Is this where the Maldives are heading ?????.
i agree with damn on sun- why the f*** does such a small country need 77 (??) high paid politicians ??? for what again? and why are they not doing their job by actually attending the meetings?
dont put the gst up,maybe try to find the money within the own rank would be more understandable...