President Mohamed Nasheed has ratifed parliament’s Tourism Goods and Services Tax (GST) Bill, which will impose a levy on most products and services sold to tourists by the resort industry.
Once implemented, the GST will apply to room rates charged by resorts, hotels, picnic islands, guest houses and tourist vessels, as well as all goods and services sold to tourists by these businesses.
The GST will also apply to domestic transportation of tourists, travel planner charges, and goods and services sold to tourists by dive schools, shops, spas and water sports facilities by resorts, guest houses and tourist vessels.
Deputy Minister for Tourism Mamduh Waheed explained the new legislation, which would impose a tax of approximately 3.5 percent, was intended to the offset the revenue lost through standardising land tax charged to resorts and scrappage of the ‘bed tax’.
Resorts currently pay a flat rate of US$8 per occupied room, per night, however the resort industry has criticised this as a disincentive to increase capacity and promote expansion, and limit potential revenues in the future.
Presently the government has been making anywhere from US$3,500-20,000 per bed every year, generating a total of US$47 million in revenue from the bed tax per year.
Under the amended Tourism Act, arbitrary lease agreements will be replaced by a blanket payment whereby if the rent charged for less than 200,000 square metres is more than US$1 million, the rent is set at US$1 million per year, and if the rent charged is less than US$1 million, the rent will be set at a rate of US$8 per square metre.
The Act stipulates that US$1.5 million per year will be charged for 200,001 to 400,000 square metres, while where the rent paid for land greater than 400,001 square metres is more than US$2 million, the rent of the land will be set at US$2 million per year.
The new land tax scheme, which was originally proposed by MDP MP Ibrahim Mohamed Solih, reduces the government’s income from the tourism sector from Rf 1900 million (US$148 million) to about Rf 1300 million (US$101 million).
“Before the lease rent was set individually for each property and it was very easy for a Minister or the government to modify it,” Mamduh explained, “although there was an index sometimes used to calculate the price based on proximity to international airports.”
Basing land tax on a square-metre basis “actually reduces the rent of most properties,” Mamduh said, explaining that the new GST was intended to offset this loss.
“Both of these will be good for everyone, especially investors, now the ministry cannot play with the axes any more.”
Opposition DRP MP and former Tourism Minister Abdulla Mausoom has previously told Minivan News that a standardised land tax scheme was “not in the best interest of the country”, because fixed prices did not give the government flexibility when investors were willing to pay a better price.
“The Maldives is very small and our natural resources are limited,” Mausoom said in April.
“We should facilitate and investor-friendly environment without eliminating the competitiveness of the market.”