President claims tax reforms key to addressing national rich-poor divide

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.


24 thoughts on “President claims tax reforms key to addressing national rich-poor divide”

  1. A poorly crafted article which really makes no sense.

    The government is increasing revenue in order to provide services for the people? Pray tell what services these might be? Hasn't service provision been outsourced to corporate entities created by the government? Does the government finally concede that those corporate entities are going to be funded indefinitely by the government and therefore were not created to make services revenue-based and self-sustaining?

    Why were they created then? Everyone needs to ask these questions. If the Upper Lip Utilities Companies, for example, receives state funds to run a business that, at the end, does not earn enough to turn a profit, then why does it have to be a corporation?

  2. we cannot allow such a corrupt government to tax as much they wish. this is just to deepen mdp activists pockets. nothing else. we as a taxpayer, has the right to know how our money is spent. but at present there is no body or legislation to look on that.

  3. DRP and PA wish to stifle tax reforms as they may stifle development? I disagree. If, for example, the Government can use the taxes to subsidize wages of aldivian employees, if they are getting more justice, they would be motivated to work harder, the quality of service and produce would be better.

    The point is, social justice and compassion benefits all, which is the opposite view to the common liberal economic view that greed benefits all.

    Have you ever read the works of John Nash (played by Russel crowe in A Beautiful mind?

    Since Adam Smith emphasised that self interest works for the benefit of all, it was assumed that pure greed was good. Poverty and revolution caused keynes modification of economic thinking. Of course, modern economics sees a new wave of greed, justified through arguments such as Friedman's who pointed out the impact of 'social-justice'on inflation.

    If the tax reforms are used correctly, even businesses will win!

    I understand the arguments DRP PA are using, but they are deeply wrong, and anyone can see their motivations are sick, even though they try and justify their resistance to this through seemingly humanitarian arguments.

  4. President's tax reform plans are politically convincing talking points for the public. However, the maintenance cost of the new political regime and cost of remaining power for MDP will offset any benefit to the public.

    And i tend to agree with opposition on the drastic shift in specially value added tax which will make Maldives less competitive in the international arena.

    The best option would be moderate tax system rather than radical and manage state costs within the means.

  5. @MM

    "And i tend to agree with opposition on the drastic shift in specially value added tax which will make Maldives less competitive in the international arena."

    Here we go again! Where on earth do we find this "competitiveness" that you're talking about? What products or services do we produce that will get jeopardised in the "international arena" due to value added tax?

    Don't even dare mention tourism, since that has nothing whatsover to do with this.

  6. @tsk tsk.

    A very good point. The reason why the government has to establish corporations that will be funded by the government is for the sole reason of cutting civil service jobs. Its for a political advantage. The President or MDP can't exercise their power over civil servants and force them to join the party.

    For eg, now that health ministry and the customs employees are not civil servants that is a lot of families dependent and at the mercy of bipolar anni. They call this restructuring. An excuse to centralize power.

  7. "social justice and compassion benefits all, which is the opposite view to the common liberal economic view that greed benefits all."

    I'm not sure if 'greed benefits all' is a liberal view. It's usually right-wing economics that stresses on the greed and profit incentives.

  8. @Ahmed

    I guess you choose to believe within confinements of your little cubicle and ignore what happening around the world.

    And now you don't want to talk about tourism which is basically the only foreign exchange earning product.

    Like it or not, the people are suffering for the pure reason, we spend more than we earn by printing more money, just to cling on to power. Look at whats happening, shortage of dollar and inflation.

    Any taxation system need to take into consideration, what are the consequences of such a system. You cant tax in Maldives like any other country especially with current state of the world and local economy. You will be jeopardizing the private sector.

    You can only squeeze so much from a tiny private sector.

    We have a state arm that is expensive and incomparable to size of the economy and population.

  9. There are increasing signs of this government trying to get a stranglehold on power. Anni is already talking of 2014 and beyond. He clearly wants to stay for a 2nd term and will try any means to get that.

    I've begun to lose faith in the present regime. There are just too many dodgy deals going on. Perhaps a Zedey comeback won't be too bad afterall!

  10. The Maldives is moving towards a modern economy. In the history of the modern world, no country has ever reversed this process. Get used to it. It is for the good of many, not just the few from here on. On paper, we should be one of the richest country,s in the world with a huge tourism income and small population.

    No one likes change or paying taxes, me included but, we have got to start thinking long term and grow up.

  11. I welcome income tax which if carried out on a percentage of income on an ascending scale for the richest amongst us is a safe and fair way to gather revenue for the nation.

    Sadly the most obvious systems used by 'modern nations' is being ignored, that being tax on fuel and tobacco. Both commodities are strangling Male' to death and still they are relatively cheap in comparison to other nations. If by taxing them we lower the usage of both that too is a benefit to the majority.

  12. we are slowly becoming socialists. reforms to take from to rich and to give to the poor sounds like robin hood to me.
    in a free market economy these issues are addressed differently.

  13. our president surely will not increase taxes on tobacco, coz that would be bad for the average voter.
    he is clearly trying to please the avarage voter on cost of our fragile economy build on tourism. " too dangerous".

    i think taxes on tobacco fuel for all vehicles in male and could be increased tomorrow itself. but the wouldnt do that, would they?

  14. Bloody MDP....robbing us the average worker so that MDP and its cronies can deliciously eat away all the tax money...maldives is fast becoming like India or bangladesh where taxation is very high but with very low social benefits...With enomous amounts of money going into the pockets of ruling party....I say NO to all taxes until we find way to indeopandtly accont for the tax money...Plus the taxation rates are way to high....YOu see, even today the president appointed a directly to singapores MNSl office...Only almighty Allah knows how much that costs with benefits and all...and the man is hardly fit for the job...he was rcently showing his private parts on this is a small example of what will happen to our tax money....Our hardearned tax money will be spend on MDP and its cronies..they will not pay taxes, we will have to pay it if not we will be punsihed..MDp will get filthy rich reecko, maria, zaki et al will becomes filthy rich beyond their wildest dreams....Our money will be squandered....may God help maldives.

  15. @Ben..oh my dear love sick naive Mr.Ben..and i qoute
    "If the tax reforms are used correctly, even businesses will win! "

    Mr.Ben, i know you are a blind beliver of the yellow vice...The tax money will not be used correctly...The money will be squanderd...the money will just be taken from the worker and staright into the pockets of MDP thugs....Taxation is the MDP's get rich scheme...By looking at the last 3 years almost all government contracts and public works involves corruption with delayed, substand work done by the Yellow party affliated companies with profits directly going to the party and its cronies..

  16. @yaamyn: sorry brother, misunderstanding of language... As you may have read, I am in Australia, and our extreme right wing party is called the Liberal Party, in the VERY OLD sense of liberal, liberal economics as opposed to Government interference economics (Adam Smith etc...) Where as, liberal, in the rest of the English speaking world, implies civil rights liberties etc... This is not the first time I have made this mistake, every time for example I have told my US friends that this and this happens because the Liberal Party is power, they think I am blaming, oppression of refugees etc... on a left wing party... um... hope thats clear sorry for confusion

  17. im not in favour of the opposition but still i have feeling the presidents trying to drag everyone below the poverty line..

  18. @Yaamyn: The word liberal economics was first used to describe freedom from mercantilism, it was the merchant class breaking away from the power of the old aristocracy which pushed for capitalism. Before, for example, John Stuart Mill, Liberal implied free market economies, the old aristocracies preferred mercantilism.

    One lecture described it to me like this. Their are negative liberties and positive liberties.

    The earlier use of the word liberal implied negative liberties, freedom 'from' state interference.

    The positive liberties, which were popularized through, for example, the LATER works of John Stuart Mill, implied, the freedom giving it's people the freedom to, liberty came to mean something like agency.

    The term liberty has meant many different and even conflicting things.

    Because, in fact, liberal, if we really look at the word, does not even really mean freedom, it originally meant generous!

    In the US, liberals are the human rights activists who argue for state intervention to help the poor and oppressed realize their potential.

    In Australia, the liberal party is a right wing capitalist party.

  19. OMG I must be tired I just checked out my grammar and spelling, my brain falls apart when I am so tired evidently...

    Anyway, I think you are smart enough to ascertain what I was ATTEMPTING to say.

    Hehe, need a break

  20. Ben:

    Correct me if I am wrong. But wasnt it Labour government under Keating et. al. who actually liberlized the australian economy? Like reducing (very significantly) import tarrifs, removing price-wage controls and replacing with enterprise-bargaining, banking deregulations, floating their currency.

    These seems to me straight out of Friedman's playbook.

  21. @MM

    "Like it or not, the people are suffering for the pure reason, we spend more than we earn by printing more money, just to cling on to power. Look at whats happening, shortage of dollar and inflation."

    Is this the best that you could come up with? This is blindingly obvious to a 7 year old child! I asked about how we'd loose our "international competitiveness" as you claimed and you have not shown any single piece of evidence to support that. You have not even identified what that means!

    The Maldivan government has been printing money for a very long time just to fill shortfalls in budgets. The most perverse perpetrator of this "crime" has just now been appointed to the Judicial Services Commission. He is none other than Mr Gasim, our favourite tycoon.

    Seems to me that people like yourselves do not fully comprehend the scale of the problem or how to solve it. You go on about stating the blindingly obvious facts such as high spending. Do you actually know where that money is spent? If that spending is reduced, do you know how many thousands of families will be affected directly?

  22. @Pen: Yes you are correct, as paradoxical as it was, the labour Gov. under Hawke in the 80's and then under Keating, began to move away from it's traditional routes in the Union movement and to sell off Government assets, it was the 'third way,' privatising the economy whilst increasing welfare... Well Done. Why this is a paradox is because it was traditionally the Liberal Government who supported businesses, and the labour Government, as the name implies, was born out of Unioism...

  23. The result was, overall there is more wealth in Australia, but the gap between the rich and the poor is bigger. Some argued that the poor were better off under privatisation as more wealth created equals more wealth taxed, but: at the moment the poor in Australia are facing homelessness like never before, other problems...


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