Business head cautious over president’s cost-cutting plans

President Mohamed Nasheed has outlined tax reforms he claims will help to eventually alleviate concerns over the higher costs of goods and services at the heart of protests that have raged in Male’ over the last two days.

Beyond announcing that May 1 would now serve as a public holiday every year in celebration of International Labour Day, the president aso attempted to outline government plans for economic reform.

Speaking yesterday during a function to mark Labour Day, Nasheed unveiled plans to try and reduce costs for “everyday items” by between 10 to 15 percent by removing import duties, which the government estimates account for Rf2.3bn of budgeted state income during 2011.

The president said he believed these costs can be covered by tax reforms; both on the earnings of members of the public with a monthly wage of over Rf30,000 a month and increasing taxable income from the tourism industry.

“The reforms to our financial system involve creating a tax mechanism, like in other civilised societies, instead of depending solely on import duties,” he stated, while also pledging to introduce a minimum wage rate during the year.

Some prominent investment groups in the country, while supporting initiatives to reduce costs that have led to ongoing public protests in the country, say that the addition of a minimum wage and a Goods and Services Tax (GST) on all businesses operating in the country, needed to be gradually implemented to ensure the nation’s fledging economy can cope with any potential changes.

As part of his reforms, the president claimed that the government planned by next month to propose amendments that would remove import duties on basic items as of 2012.

According to Nasheed, these proposals would be backed by other amendments expected to be forwarded to parliament. This includes an increase in the Tourism GST, introduced on January 1 this year, to five percent from the 3.5 percent introductory rate, as well as implementing an entirely new GST of three percent on general trade outside of travel industry services.

“I have no doubt that these reforms will shift the government from its current sources of income to more sustainable income sources,” he claimed.

To try and counter the more pressing concerns of high costs that have allegedly led thousands of, mostly young, people taking to the streets in protest, the president claimed that it was purseuing a number of financial [instruments] to try and cut down on the impacts of higher living costs such as in establishing a minimum wage during 2011.

“This government came to power with hopes, to give a decent and an honourable life for Maldivians,” he said. The president said that the initiative was part of plans to promote employees rights as well as those of employers within the country through the establishment of “stronger labour relations frameworks.”

“Most political leaders are disinclined to restructure monetary systems, change wage limits, and reform tax regimes because they are pressured to consider the needs of few powerful people,” Nasheed claimed. “But I assure you that the leader you [Maldivian people] have elected is not like that.”

In addressing Nasheed’s plans, the Treasurer of The Maldives National Chamber of Commerce and Industry (MNCCI), Ahmed Adheeb Abdul Gafoor, said that he believed further development such as investment was needed to strengthen the Maldivian economy before taking on major reforms – at least in the short-term.

“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 that with the planned introduction of the additional GST on general trade and corporate tax, the prospect of setting a minimum wage would need to be studied in terms of possible impact, particularly in the private sector.

“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.”

Adheeb therefore urged the government to consult 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.

“The tourism industry here has been developed mainly by the private and not the public sector,” he said.


22 thoughts on “Business head cautious over president’s cost-cutting plans”

  1. Dear Mr President,
    I am not interested in knowing what your cost cutting plans are. All I want is that the cost of living be reduced NOW.
    Thank you
    Average Citizen

  2. Dear President,
    Taking decisions that have serious macroeconomic implications on the country and more importantly on us average peoples' lives require a lot more thinking than puffing on your jo! You and your jo puffing gang have over the last 2 and half years destroyed any hope we had of building this nation after Gayoom and his cronies plundered this country for 30 long years! The best thing that you can do for this country now is to resign!
    thank you,
    mdp supporter

  3. Given the state of our economy, if President Nasheed introduces minimum wage businesses will have no option but to reduce the number of people employed. It will increase unemployment..

  4. I hope adheeb you get well paid generously from the people who you are lobbying for. when you say 'consult employers' what i can understand is that to ask the SIX businessman in the country and make a policy that suits them . Where is every one else in the equation?

    We all know a progressive tax system is need in this county to reduce unbalance of wealth in this country.

    when we pay a import duty on all products , in fact the poor is paying a much bigger contribution of their earning than the higher earning groups. Import duties should be used as a tariff mechanism to protect local industries. I wounder why a genius like you can't figure out it. If we all pay taxes we will be wealthy nation. It will also push to increase productivity and efficiency in private and public sector

    One of my biggest arguments is that, land should also be tax. Up to this day their is not a single study done in the maldives showing the landownership status of the whole country. Their are so many land which had been grab by a few people. They have tried everything in their power in not letting the authorities completing the land cadastre. The main reason is not letting the public know whos owning these properties.

    unless we solve the situation of cheap foreign labor in the country , non of the school leaver will ever do the so called 'dirty job'. The main reason why they don't won't to work is not because its dirty! Because it pays you a penny for the hard work.

  5. Rinzy, any decently run business should judge their head count by work load, not wage bills. If someone is required, they can afford to stay. The minimum wage is tried, tested and proven to work in the rest of the world. We have to accept in the short term that if it is not hurting it is not working. This is the price you pay to break free from the charade of a false economy.

  6. “We [the private sector] could end up losing some of our competitive edge over other countries..."

    Adheeb must be a comedian! What competitive advantage do you have over other countries? What exactly are you producing that's cheaper, better and more efficient than other countries? What a load of bull shit is this!

    The only thing that the Maldives "produces" is fish! That's it! I don't think taxation or a minimum wage is going to make those lose a "competitive edge".

    These so-called small enterprises that Adheeb is championing do no more than import tons of cheap goods and produce from abroad and make a killer profit by selling them at vastly hiked prices. I sure hope the government swiftly introduces taxation on these so-called enterprises. We have waited 1000s of years for a fair taxation system in this country. That's enough of a phasing in period!

  7. Oh yes, one more thing. If Adheeb is claiming that the "small enterprises" that are running the tourism industry are suddenly going to lose "competitive edge", then that highlights exactly what President Nasheed said. People like Adheeb are mouth pieces for the Big and Powerful businesses in the country.

    A taxation system that operates on a tiered system will be most beneficial. That should include the land owners who are raking in millions on rent from property and land. However, we have to be aware that most of them sit in the Parliament!

  8. Its funny that with all this living cost increase, the restaurants, teashops and coffee houses are still full - hahaha

    Its not to say that some people are hurting. But if one looks at the front line of protesters, most have probably never worked, live off their parents and enjoy expensive coffee and cigarettes on a daily basis to say the least.

    So they want their leisure lifestyle to be subsidized with public money ? What a joke.

  9. Mr Adheeb, this country's former leadership (the 30 YEAR OLD DICTATORSHIP) did everything like what you have commented here....look at the sad situation that resulted!!!!

    Now we have to try similar program or way which Singapore has adopted to promote their economy because Singapore is an island country very similar to us....they have nothing other than islands....i think we already have a better tourism industry what we need is a good governance in the Economic development field as mentioned by HE Mr please don't try try to put comments which is so old and outdated and FAILED already during the world famous silent DICTATORSHIP of longest served DICTATOR Gayyoom

  10. The best way to cut the cost of living would be to send all Islanders who live in Male’ without doing any good to Maldivian economy to their original houses and provide them opportunities to earn their living. The core issue is one square KM is being a place to depend 350,000 for all aspects of life. The place is congested with criminals, jobless, hooligans you name it all kinds of human species. Male has capacity of about 30,000 people to live comfortably. When this equilibrium disturbed with 350,000 people, you can imagine how anyone can cope up with such a mess.

  11. NO TO FURTHER TAXES..this government is hell bent on giving rights to illegal immigrants and criminals..what about our rights?..the rights of the people who run small and medium enterprises..the people from the islands who are in male' running small business including shops, restaurants, pharmacies, etc etc...we already pay high rents so that our kids can get a competitive education...we pay high rents for shops in male' and the government is going to tax us..HELL with this government, destryoing business that we have put our hard work , heart and soul into....why do they want us to be? beggars in a welfare state? so that we can work in on of the business empires of a rich government official or MDP member? what are they trying to create, a serfdom? They are going to tax us so that they can give that money to MDP people, like 21 million dollars or 336,000,000 RUFIYAA..they are billionaires while we get taxed of our meager little work what is 40 or 50 thousand rufiyaa per month compared to that????

  12. Dear Ahmed Bin Addu Bin Suvadheeb, you say we import cheap goods and make a big profit of that..lets say we don't import anything and lets just see how much it would cost you to go to singapore, dubai or indonesia and buy a bar of lux soap...or lets say we import brands like Bvlgari Soap..can the average maldivian afford it? the more taxes means higher prices and the tax money will be eaten up by MDP and its cronies...dont write about things that you know nothing about and have no experience about.. how old are you 15?

  13. A very easy way to end the protest. To reduce spending and for solidarity with the people, the government should submit an austerity plan. This should include a 50% reduction in all senior level govt salaries including MPs. This will expose the real agenda of these MPs, although this alone will probably not bring prices down. We will see how quickly support for these protests die down.

    In poor countries protests happen when people can't buy a loaf of bread. This is not the case now. There was a price hike followed by a devaluation previously under Gayyoom as well, no protests then. STO yesterday announced essentials like flour, sugar, milk etc have been imported cheaply and being sold by them.

    The opposition and the media they fund have been complicit in this irresponsible behaviour for their personal gain. There was a woman speaking on the megaphone last night asking the President to bring down the price of $ back to Rf 12.85. Nobody there has helped explain to this poor lady how this works and they are using people like her unashamedly.

    Adeeb and others are singing shit from a point of authority. Read ABABS's comments above explaining the hypocrisy and his insults to our intelligence.

    Anni is no better either, making one idiotic statement after another. Just explain facts as they are Mr. President, we can take it.

    I really hope he pulls a rabbit out of the hat here, not because of my love for him or his great policies, but for our stable long term future. These nut jobs protesting don't realize that if they are successful in toppling a democratically elected government, it sets a precedent. It means we become like Thailand, where protests and burning of public property becomes the way of changing governments.

    One other thing, don't insult the memories of those who died in Egypt and whose bodies still lie rotting in Syrian streets by comparing yourself to them. They protested against tyrants who unleashed the full force of the military against unarmed civilians.

    Tahir Square! Would be laughable if it weren't so sad.

  14. @ Nars-

    I can tell you what happens when import duty ends-

    You leeches who call yourselves traders cannot suck the blood of the people. It is an open secret that you make up invoices which show a lower value than what you paid for, in order to pay less duty. After this first dishonest hurdle, you price goods and at whatever price you want and cite $ rate as an excuse for your miserable existence.

    It is better that people like you go bankrupt and we have hard working and honest people as traders.

  15. The most people who have commented here is socialists who do not understand the way forward is improving the out put of our country by producing essentials, and by putting political minimum wage the country will face another burden especially in the private sector.. These are basics that people who are sitting behind the computer desks would not understand as they live well off with a huge salary in the public sector..

    We need people like Adheeb who understands the front line of the businesses and its impacts. The way we are heading, the government want to tax all the businesses and people and pay hefty salaries to party activists and cronies with mega projects of millions of dollars. The educated who are scared to say anything about the current economic situation in front of my eyes are not worthy to comment on these issues with fake names.

  16. Peasant ...did you know that some times we have to pay more than the actual price of the goods after revision by the "customs" specially since this useless government came to power...I agree with Nafeez and are not worthy to comment...Your hatred clouds your ability to think.

  17. @ Nar-cissist

    Your comments above reek of greed.

    Taxation is pivotal for any country to expand the economy. And the fact that you have to pay high rent has nothing to do with the government unless of-course there is a law regarding rent control. The owner of the land can rent it for what ever the amount he wishes.

    As for your comments about rights, what made you think that immigrants/criminals should be deprived of their basic rights?
    The very same immigrants you mentioned keep this country running.
    After all, they are from a spectrum of professions ranging from doctors to Bangladeshi labour workers.
    God forbid, any young Maldivian would undertake a "dirty" job.

    Criminals regardless of their crimes must be given their basic human rights at the very least.
    While i do believe we are better off with their heads on a pitch fork.

    I am afraid hatred/frustration has clouded your judgment as well.

    (ps. i am no expert in economics, but a mere humanist)

  18. @Nars- Is that right? you need to pay more after revision? So you'd have no problem if they do away with duty altogether and impose a tax. I don't mind paying my dues, if you don't have a problem paying yours.

    Import duties makes everyone, rich or poor pay equally, a tax makes the rich pay more.

    But hey you have made up your mind based on your business interests, just don't make your demands in the name of the poor.

  19. None of you seem to have lived and paid taxes. Maldives do not need taxes. We make enough for all the 300,000 odd Maldivians to live comfortably all their life.
    Our economy is tanked and it is ridiculous to bring in more taxes. What is required is good fiscal policy like reducing the expenditure. What this government does is inflate the political employees and also increase the salaries of political appointees.

    The MD at MACL makes close to 80,000 per month and then he sends half the time traveling to a foreign country flying in business class. His CFO makes close to over 60,000 per month and does the same. Why do the need such big salaries as they do not even have an airport to run?
    It was the fact that they messed up the airport, that someone like GMR was able to come in and take over.

    This is the state of affairs in Maldives now. Bringing in more taxes will kill the whole thing.
    What the government should do is reduce the budget, cut the salaries of these people and just hold tight for 2 years without all these fantasy ideas of Gulhifalhu, overhead bridges etc and be realistic.

    These are many resorts that have been awarded yet have not been built because of lack of funds. They should bring in a few investment banks and rejuvenate the economy.

    This is not a huge population but just over 300,000 people and if anyone thinks he needs to tax us to feed us then he has no clue and is not fit to be a President of Maldives.

  20. Our economy has consistently been raped for well over two decades!

    Opposing Leaders have the galls to call on these demonstrations in the name of economy and stable prices!

    Opposition Leaders and Parliamentarians are shameless!

    And yet many of us poor citizens, cannot get a wink of sleep; without licking someone's "that" in return for a small favour being done!

    Everyone (including hierarchy in hiding on all sides) know that nothing on earth can bring this economy about without dire consequences!

    And still it seems demonstrations can bring this economy to balance!

  21. @Manik

    You're living in the land of fairies. Firstly, the population is no longer anywhere near 300,000. It's more like 450,000. Secondly, do you actually know the breakdown of government expenditure? It's obvious that you don't know this. I don't know it either and I won't speculate on that saying all government expenditure is going towards the salaries of politicians.

    About a year ago, the government did release figures for salary expenditure and it was quite clear that the salaries of political appointees was just a small fraction of expenditure. We don't know what it is now. The onus is on the government to publish new figures.

    You also seem to forget that there's a lot of very highly paid people in this country that the government do not have any direct control of. These are Members of Parliament and those who belong to so-called "Independent Institutions" and the Judiciary. Parliament sets their own salaries and they have so far refused any cutbacks. Parliament also sets the salaries of the others named above and have consistently refused to scale back their salaries as well. If public expenditure needs to be reduced, EVERYONE has to cooperate.

    Regarding Bvlgari soap and taxation, all I can say is, if one can afford to buy Bvlgari soap, then they certainly can afford to pay taxes and should pay them. Bvlgari soap importers, Rolex importers, junk food importers etc are not doing anything productive for the economy.

    I will definitely urge the government not to tax the productive small business that actually drive the economy forward. These include the business engaged in fisheries and agricultural sectors, arts and crafts businesses and a number of creative industries. They shouldn't be taxed or their tax burden should be minimal.

  22. Suvaadheeb, I actually know a lot more about the expenditure than you do from your comments here.
    True, the Majils members are paid too high as well but we do not need all these political figures being paid all these high salaries at all.

    Do you know that most companies are also paid extremely high salaries competitive to most developed countries? I include these so called independent organisations, the Majlis in this.

    Do you think the MDP members are against this salary raise in the Majlis? FYI I am a hardcore MDP member and have raised this issue time and again.
    Taxing is not the solution for a small country like Maldives.
    Reducing useless expenditure is the way. We need two years of austerity and then the economy will be on an even keel if they manage this properly.

    Regarding Bvlgairi soap, the way to handle this it to increase import duty on these exotic items and not to tax the man. You cannot tax people without providing the service to the people first.
    All any economist who know anything and they will tell you the worst thing one can do is to tax and tanking economy.

    There is not much difference between 300,000 odd to 400,000 odd people. You can get most of them into a big football stadium in some countries.

    If you start taxing, the unemployment will sky rocket, the government cannot provide the facilities and then there would be unrest. No one taxes anyone when the economy is bad. That is pure madness.


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