Airline Mega Maldives continues to operate scheduled flights to and from China this week, despite the Maldives Inland Revenue Authority (MIRA) taking action to freeze the company’s accounts on Monday (June 17) over disputed tax payments.
MIRA announced this week that it had decided to freeze bank accounts linked to Mega Maldives with the assistance of the Maldives Monetary Authority (MMA) over what it claimed was the company’s refusal to cover tax flagged in an audit report.
The airline has stated that it was engaged in negotiations with local authorities to try and resolve the dispute with MIRA concerning the state’s interpretation of the requirements under which withholding tax must be paid.
The company has maintained that it remains fully up-to-date in terms of covering profit and service tax payments to MIRA.
Mega Maldives, which is operated through a US-Maldives private joint-venture under the name Mega Global Air Services (Maldives) Private Limited, is the country’s second scheduled airline.
The airline commenced operations in 2010 and completed its maiden flight in January 2011, where it flew over 230 passengers from Hong Kong to Gan International Airport.
During July 2011, the airline went onto become the first Maldivian carrier to provide flight services from Shanghai to Male’ with 200 passengers.
MIRA’s Director General of Audit and Finances Fathuhulla Jameel told local media this week that a tax audit carried out by the authority revealed that Mega Maldives owed large sums of money as unpaid taxes.
According to Jameel, the total amount of money MIRA is owed by Mega Maldives stood at more than MVR 13 million (US$ 843,060.96) as of this week.
The airline is also required to cover unpaid fines valued at around MVR 1 million (US$ 64,850.84) resulting from the company’s failure to pay taxes and produce statements, according to MIRA.
Speaking to Minivan News today, Jameel said that MIRA had been acting in accordance with the law, adding that withholding taxes were imposed under section sixof the Corporate Profit Tax Act.
“We have a two stage appeal process. One is if they are not satisfied with our figures in the tax audits, then there is a department in MIRA which they can appeal. If that fails, they can appeal to the Tax Appeal Tribunal. So far, to my knowledge, no appeal has been made to Tax Appeal tribunal. If they are unhappy with our figures, there are ways they can find a solution,” he said.
No funds in the frozen accounts: MIRA
MIRA has revealed that the accounts of Mega Maldives frozen by the MMA were found to have insufficient funds to cover the outstanding payments.
“We believe that they will produce the required tax statements and pay the money owed to the authority. Having failed to pay the amount, we froze their accounts and when we checked, there were no funds in those accounts,” Jameel said.
According to Jameel, of the two frozen accounts, one had only US$ 10,000, while the other contained MVR 9,000.
“Some accounts are still not frozen. But we had requested to freeze all accounts under the airline. They can still deposit money even if the account is frozen,” Jameel added.
Jameel told Minivan News that negotiations were already under way with the airline, which would be allowed to make payments in installments once an initial 30 percent of the outstanding payment to MIRA has been covered. However, Jameel said it was difficult to detail the exact figures or the duration over which installments could be made as negotiations were ongoing.
Jameel said that MIRA had formally requested the MMA to freeze the company’s accounts last Thursday (June 13) after several attempts to retrieve the money were unsuccessful.
“As a last resort, we requested [MMA] to freeze their account. We had made the decision [to freeze the account] after all the attempts made to collect the money failed,” Jameel said. “MMA will order all the banks to freeze the accounts of that airline. I presume the accounts may now have been already frozen.”
Airline negotiations
In a press statement issued yesterday (June 18 ), the airline claimed that it was currently in negotiations with MIRA and the government to try and resolve the dispute.
“The tax that this airline is required to pay as per Maldives Inland Revenue is the withholding tax. This tax, by any means, is not similar to taxes such as the Corporate Profit Tax (CPT) or the Goods and Services Tax (GST),” read the company statement.
“Generally, corporations are required to pay taxes based on their profits or based on the income that is generated. These two taxes [CPT and GST] are being regularly paid to MIRA as required by the law,” it added.
Withholding taxes are based on a local company’s spending on services provided by expatriates. Mega Maldives, being an operator of wide body flights, said it was continuously required to seek foreign technical assistance.
Interpretation issues
The airline has said that according to MIRA and the Maldivian government’s interpretation of tax laws, several services required by the airline had fallen into the criteria requiring payment of withholding tax. The tax currently stands at 10 percent of the costs paid in such services.
“Assessing the figures, having to pay an additional 10 percent as tax means 10 percent is added to the cost incurred by the airline,” it claimed.
The airline argued that under this interpretation, it was required to pay withholding tax on top of the cost of spare parts required to be made available by each airline in the country as per the Maldives Civil Aviation regulations. Withholding tax was also said to have been added to the general cost of operating international flights.
“Since the stated expenses are required by an international carrier, imposing a huge tax on such expenses is a financial burden on the airline that is resulting in huge losses. The Maldives Civil Aviation Authority which is helping this airline in the negotiations with MIRA has also highlighted that such taxation could be detrimental to the aviation industry,” it claimed.
Speaking to Minivan News, Chief Executive Officer of Maldives Civil Aviation Authority, Hussain Jameel confirmed that the authority had been assisting the talks between the airline and MIRA.
However, he declined to provide further details at the current time.
Mega Maldives stated that as a result of financial difficulties incurred by the company over the dispute concerning the withholding tax, it had been forced to reduce its number of scheduled flights.
The airline maintained nonetheless that was working on expanding its fleet, which currently consists of several aircraft.
In its statement, Mega Maldives called on authorities to create an environment for aviation companies to have a profitable and viable business in the country.
Operations interrupted
Local media reported earlier this week that the Maldives Airports Company Limited (MACL) had originally denied approval for a Mega Maldives flight to leave the country over its failure to pay for the airport handler’s services.
However, the flight was allowed to leave the country after the airline and MACL finally came to an agreement over payment of the services.
The flight, which was expected to depart at 5:10pm on Monday evening, was only able to leave more than two hours later at around 7:20pm.
According to MACL’s Managing Director Dr Ibrahim Mahfooz, both Mega and the MACL had discussed the issue of pending payments, and Mahfooz told local media outlet Sun Online that Mega had agreed to make the payments to MACL.
Sun Online reported that following the grounding of Monday’s scheduled flight by the airline, it had agreed to pay MACL a sum of US$ 235,000 and to pay an additional sum of US$ 389,000 on Wednesday and Thursday.
Meanwhile, speaking to Minivan News about the dispute today on condition of anonymity, a senor figure within the country’s tourism industry said that Mega Maldives had in recent years played a vital role in connecting Maldives to China.
China last year overtook established European tourism markets to become the leading source of visitors to the Maldives. The senior tourism source said that air connectivity and flight frequency played a significant part n the fortunes of an isolated destination like the Maldives.
“An impact on any airline operating to the Maldives will impact the country’s tourism sector,” the source claimed.
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Boom boom MDP Mariya!
This company started to have trouble when MDP loss thier power .
This company is JV company with a foreign party where Maria Didi and her family owns then majority without even paying a single cents as share capital.
Since foreign partner had no choice but to accept the offer at that time , knowing how strong Maria was at that time, they agreed with the terms Marai dictated.
This is why today, MEGA Maldives is in deep shit.
Wow.. how can a company negotiate tax code with Government. Looks like MEGA can negotiate even a constitutional amendment if it were advantageous to the company..
Ok, if the system has a flaw, that has be addressed collectively. Not just for one company.
If rules can be bended for a single company, the tax system (which is the right all citizens) will not function.
Companies that do not pay taxes and contribute to Pensions (like yatch Tours) are traitors of the country whose business licences should be cancelled in the name of the people.
There is no bigger treason than avoiding tax
I think we are now very good talk about technicalities. If we continue this path we will end our tourism industry.
Mariyam Didi has no involvement in MEGA Maldives Airlines. She had no role in its creation, no role in it's share capital, and no role in its management or government relations. The founders of MEGA knew each other outside of any political relationship and, in fact, the idea for this airline was inspired by an invitation from people at the Civil Aviation Authority during a passing visit of one of the foreign founders to the Maldives. The position and name of Maria Didi wasn't even known to this founder until months after the company had been created.
Frankly, the company, its founders, and its management avoid political matters as much as possible. It is only focused on building a successful international airline in the Maldives, something that has never existed before. Mauritius and Seychelles each have their own airline, but Maldives did not. Since MEGA started, the Maldives aviation industry has grown considerably, and in a symbiotic way with MEGA.
The interpretation of MIRA has applied this withholding tax against so many costs that the company cannot see a path to profitability. After three years, the company is not yet profitable, yet MIRA demands taxes that would sink the company permanently, forcing it to shut down or move out of Maldives.
The company recognizes that existence of Withholding tax is non-negotiable with MIRA - that is the law. But some of the taxable expenses are applied at MIRA's discretion, that is to say, they get to determine what is a taxable and what is not a taxable expense. Some of the taxable expenses are unreasonable and are against international conventions signed by Maldives. Such taxes are such a burden as to make the airline impossible to operate, but MIRA refuses to re-consider.
Maldives must have sustainable tax revenues, certainly, but Maldives must also have sustainable companies to generate that tax revenue. If Maldives taxes the companies that generate commerce to such a level that they can never be profitable, they will leave. MEGA is considering to leave Maldives unless this situation can be solved. It has nothing to do with politics, and everything to do with governance and good policy.
In the next 30 days, the passengers MEGA will bring to the Maldives will generate nearly $1 million in GST revenues for the government. By next year it should be nearly $2 million per month. MEGA is a major contributor to the Maldives economy and tax base.
Maldives has great potential to create tremendous growth in its tourism and aviation sectors. This growth will employ many more people in the aviation sector in good paying, advanced jobs with ongoing training. It will allow the country to capture a much larger share of tourism spending (by capturing not just the hotel and F&B spending, but also the air travel component of spending - which is as much as one-third of holiday spending). It will generate huge revenues in GST. But the right policies and government support must be there to develop a strong international airline business (or businesses - plural).
It is already reported that after the change in government in February 2012 that China and Chinese travelers had a very negative reaction. The Chinese Ambassador said: "postpone your trip" and everyone did. All the Chinese airlines stopped flying, nearly overnight. But one airline didn't stop flying. That was MEGA Maldives Airlines. MEGA worked hard to persuade all its agents to keep selling Maldives. MEGA and its partners brought in 60+ Chinese media to see the Maldives and its people. To see that it was safe. To see that the government was working. To see that the country was still a great place for holiday. MEGA got Maldives onto primetime news in China - across ALL of China - in a positive way. It got Maldives into all the big news papers. MEGA then brought the newly appointed Minister of Tourism to China for the first ever Maldives Marketing Tour to 5 cities, where the company turned out literally thousands of travel agent staff to hear first hand what was going on in Maldives from the new government. The result was a dramatic recovery in several months time. It was only through the close cooperation of this CURRENT government that MEGA Maldives Airlines was able to do this. And this current government has been a supporter of MEGA's struggles with the Chinese regulator over traffic rights and other matters.
Running an international airline is not a political sport. It requires the determination of a nation, regardless of government. MEGA carries the Maldives flag, not the flag of MDP or PPM.
Kuribee, you are a fool. The foreign investors in MEGA had every choice to do whatever they want with their money. No one gave any conditions on approval or made any demands. That is all some story made up by people like you that think that the only way things can run is through bribes and favors. But international aviation is not a short term game. The investors chose to invest in Maldives, regardless of who is in power... because power does change from time to time.
Now, all the investors want is clarity on a path forward where the company can survive and grow. They want a policy that supports all Maldivian airlines and supportive of all Maldivian aviation. The only difference is that because MEGA's operations are mostly overseas, the withholding tax hits a much larger share of their costs than it does for IAS or FlyME or TMA.
If MEGA were serious about building a successful airline, then their training department would not cut corners in training it's pilots. I saw firsthand in their simulator and from the jumpseat substandard pilots make mistake after mistake. The pilots that work there are rejects from other 3rd world countries. This culture starts at the top. I was not surprised by this story.