The government has proposed raising import duties for staple foodstuffs and oil to 10 percent to raise additional revenue anticipated in the record MVR24.3 billion (US$1.5 billion) state budget for 2015.
Amendments (Dhivehi) submitted to the Export-Import Act on behalf of the government by Maldives Development Alliance MP Mohamed Ismail proposes raising import duties from the current zero rate to 10 percent for rice, flour, wheat, and sugar as well as oil or petroleum products.
Additionally, the bill proposes raising custom duties for tobacco from 150 to 200 percent and raising the duty for a single cigarette to MVR1.25.
The government has also proposed imposing a 20 percent custom duty for luxury cosmetics and perfume and a 200 percent custom duty for land vehicles such as cars, jeeps, and vans.
However, the bill proposes scrapping import duty for luxury yachts imported for tourism businesses.
The stated purpose of the amendment is revising import duty rates in light of “price changes in the global market”.
The latest monthly economic review from the Maldives Monetary Authority noted that “the International Monetary Fund (IMF) commodity price index fell in both monthly and annual terms in September 2014, by 4 percent and 9 percent, respectively.”
“The monthly and annual decline in commodity prices was attributed to the decline in petroleum, metal and food prices. The price of crude oil fell by 4 percent in monthly terms and by 12 percent in annual terms and stood at US$95.9 per barrel at the end of September 2014,” the review stated.
About 30 percent of the Maldives’ GDP is spent on importing fossil fuels. In 2012, US$ 486 million was spent on oil imports, and the figure is estimated to rise to US$700 million by 2020.
According to the Maldives Customs Service, of the MVR7.2 billion (US$466.9 million) worth of goods imported in the first quarter of 2014, one-third was spent on petroleum products.
Finance Minister Abdulla Jihad meanwhile told parliament’s budget review committee last week that the government was considering increasing custom duties “mostly for luxury items, or items that are harmful to the environment or health.”
Jihad had said the items under consideration were tobacco, perfume, and vehicles.
Other revenue raising measures
In his budget speech to parliament, Jihad also revealed plans to revise the electricity subsidy, which he said currently benefits the affluent more than the needy.
Targeting the electricity subsidy to low-income families or households would save 40 percent of the government’s expenditure on the subsidy, Jihad explained.
Jihad told the budget review committee that the government anticipates MVR533 million (US$34.5 million) in additional revenue from revising import duties, which was among five revenue raising measures proposed with next year’s budget.
The forecast for additional revenue from the new measures is MVR3.4 billion (US$220 million), including US$100 million expected as acquisition fees for investments in special economic zones and MVR400 million (US$25.9 million) from the sale and lease of state-owned land.
The other measures were introducing a green tax of US$6 per night in November 2015 and leasing 10 islands for new resort development.
An amendment (Dhivehi) to the Tourism Act has been submitted by Progressive Party of Maldives MP Abdulla Khaleel on behalf of the government for introducing the green tax.
The government has also decided to waive import duties for construction material and capital goods imported for resort development and provide sovereign guarantees for loans.
Meanwhile, at the ongoing budget debate, opposition Maldivian Democratic Party MPs have criticised plans to hike import duties while providing concessions to wealthy resort owners.
The burden of higher prices due to higher tariffs would be borne by the public, the MPs argued, contending that the government’s economic policies would benefit the rich at the expense of the poor.
“Our question is why shouldn’t an income tax be introduced? When MDP submitted an income tax bill to parliament it wasn’t passed. But we are telling this government to introduce an income tax and [tax] the affluent as well,” said MDP MP Eva Abdulla last week.
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