President Mohamed Nasheed has claimed tax reforms submitted to parliament last week will let the government bridge the gap between rich and poor in the Maldives, by boosting state income and funding government services.
Speaking yesterday during his weekly radio address, Nasheed referred to a household income and expenditure survey for 2009-2010 he claimed indicated that while 10 percent of the population were spending on average just Rf12 a day, the wealthiest 10 percent had daily outgoings of Rf230.
At present, the president said that four tax bills were awaiting approval in parliament in the form of a Goods and Service Tax Bill, Business Profit Tax Bill, Income Tax Bill and an Amendment Bill to Tax Administration Act that were key parts of trying to provide more equality between the country’s rich and poor.
The government’s proposals to try and boost direct revenue through additional taxation have been met with caution and concern by business groups that fear the president could harm business with economic reforms that needed a gradual introduction. Opposition parliamentarians from parties like the Dhivehi Rayyithunge Party (DRP) and the People’s Alliance (PA) have hit out at the government’s taxation policies claiming they were serving only to stifle development that was needed to boost national income.
According to Nasheed, the proposed legislation relates to replacing current systems of indirect tax such as import duties that affect richer and poorer citizens equally with a system that puts more emphasis on the country’s highest earners. “[This will change the current] indirect tax on the value of goods to a tax payable by the wealthy, based on the profit of their businesses,” the president stated.
If the government is able to succeed in boosting direct income, measures such as the tax reform would be put into social security and protection measures, the president said.
Nasheed claimed that survey also indicated increased quality of living standards for Maldivians. The number of people living below the poverty line – defined as earning under Rf23 a day – fell by about 50 percent from figures conducted seven years ago, according to the report.
Despite Nasheed’s optimism, DRP leader Ahmed Thasmeen Ali said last month that the country’s economic reforms – such as plans to devalue the rufiya – would remain a key concern for the DRP during the current parliamentary sitting.
“The government has indicated that it will release proposals to address economic concerns and bring down the dollar rate,” he said. “We do accept the fact that revenue has to be increased, but we would like to see serious attempts to reduce state expenditure and ensure revenue is not being wasted.”
The DRP leader claimed that the party was not specifically calling on the government to slash spending in a single area such as political appointees, but instead asking for a consensus on areas such as in the funding of new offices for local councils formed during local elections held in February.
Similarly, Ahmed Nazim, a PA MP and a member of the Majlis’ Public Finance Committee, said that he believed current government policy was ultimately stifling economic development, with administrative costs within the civil service identified as a notable problem.
“We have small percentage [of funds] to invest in the economy. We cannot move finances to a higher level though as the government doesn’t have the right policies to do this,” he claimed. “For instance, we need to reduce the number of [inhabited] islands by linking them and cutting the overall number of cost centres required for decentralisation.
The comments were made as the IMF claimed that the Maldives economy remained “unsustainable” even after cuts made to the annual 2011 budget, as it concluded its Article IV consultation earlier during the year.
Outside of the Majlis’ floor, business organisations like the Maldives National Chamber of Commerce and Industry (MNCCI) have claimed that further investment was needed to strengthen the business sector before taking on widespread economic and taxation reforms.
MNCCI Treasurer Ahmed Adheeb Abdul Gafoor told Minivan News early last month that he believed that with the planned introduction of the additional GST on general trade and corporate tax, the prospect of policies like a minimum wage would need to be studied in terms of possible impact, particularly in the private sector.
“Introducing these tax reforms and schemes like the minimum wage will be difficult over the next two years. The Maldives is at a disadvantage when it comes to economies of scale as it is,” he said. “What I would like to see is a transitional period rather than introducing these measures straight away.”
Adheeb claimed the government needed more consultation with employers – especially in smaller and medium enterprises – before putting any initiatives like a minimum wage in place, adding that private enterprises had been a key component in the more successful developments of the Maldivian economy.
“We [the private sector] could end up losing some of our competitive edge over other countries. What we need is some breathing space and for these reforms to be bought in gradually,” he said. “We have to build confidence in the economy especially with small and medium businesses. If the minimum wage is going to be introduced it should be set on an economic basis and not for short-term political benefit.”
While sharing the MNCCI’s caution, Mohamed Ali Janah, President of the Maldives Association of Construction Industry (MACI), said this month that he believed that Maldivian businesses should not feel threatened by a shift towards a liberalised economy despite significant changes proposed to tax and regulation.
Janah claimed that government-proposed economic reforms were no different t changes that had already occurred across the western world and parts of South Asia.
Although welcoming market liberalisation in general, the MACI president said he believed that industry would still likely require more time to adapt to the transitions such as a minimum wage and greater taxation on goods and services.
“We are in something of a transition period right now, but what we want businessmen to understand is that they should not feel threatened [by these changes],” he said. “We are being pushed towards a more liberal economic system where we will need more accountability and transparency.”
Janah claimed the proposed changes reflected a potential move away from the style of family-dominated business dealings that he suggested may in some cases be less likely to aim for transparency and detailed accounting.