The government will hold a consultation with the tourism industry this week to test its appetite for an increase in the Tourism-GST (TGST), Tourism Minister Ahmed Adheeb has said.
The International Monetary Fund (IMF) has urged the Maldives to increase the T-GST from six percent to 12 percent, among several measures the organisation says are urgently needed to offset the Maldives’ spiraling budget deficit, and avoid miring the country in poverty.
Parliament’s Finance Committee last week calculated that the budget deficit would reach 27 percent of GDP, on the back of plunging revenues and a 24 percent increase in government expenditure.
Adheeb told Minivan News that the government would present the IMF’s report to the industry, and discuss how to proceed: “We have to be realistic,” he said.
“The IMF has recommended an increase to 12 percent – we need to discuss what kind of increase the industry would like to see over the next five years,” he said.
Adheeb emphasised the need for stability rather than sporadic increases in the tax, cautioning against a sudden change in the T-GST which would affect those tour operators who make pricing agreements and publish brochures up to a year in advance.
However, Secretary General of the Maldives Association of Tourism Industry (MATI), Mohamed Ibrahim ‘Sim’, warned that the tourism industry was already under pressure from a decline in traditional markets.
“Is there an appetite [to increase the TGST]? No, not really. The European economy is not doing well and we would like the costs to remain the same – GST is something we have to pass to the customer. We need to maintain it, at least for the moment,” Ibrahim said.
One resort manager told Minivan News on condition of anonymity that such an increase would have “serious ramifications on many of the markets.”
“Some operators will not accept the increase mid-contract and hence resorts will have to absorb this from revenue,” he explained. “The additional costs will need to be balanced somewhere in the operation and you will find resorts have to [reduce] some of the nice touches for guests, [cut] staffing levels etcetera in order to deal with these ever growing expenses.”
The manager expressed exasperation that resorts were being asked to shoulder the burden without a parallel commitment from the government to reduce expenditure.
“We have seen an increase in some public services salaries and a reduction on working hours in many government departments who are meant to serve the resorts. Many of these government departments make it difficult for the resorts to do their jobs, with bureaucracy and rules to keep extra people in a job rather than making it easier to support the resorts in order to do their job: build more business, increase revenue and hence increase GST [revenue] in a positive manner. An increase in GST right now is the wrong solution.”
The government “needs to take a more supportive approach to the resorts”, he suggested, “whether it be processing visas, expediting customs waits or speeding up the immigration process for guest at the airport. A serious revision of the various government departments is required.”
According to figures from the Maldives Inland Revenue Authority (MIRA), the T-GST brought in 32.4 percent of all government revenue in April.
Total revenue collected in April was Rf2.5 billion (US$162.1 million) – almost double that collected in April last year – however MIRA’s figures do not take into account the substantial revenues lost from the phasing out of import duties, previously the Maldives’ main source of tax revenue.
Former government to blame?
Adheeb blamed the need for the increase on the former government’s changes to the calculation of land lease rents, which he claimed were responsible for an Rf540 million (US$35 million) shortfall overall after the new taxes were introduced.
MATI’s Ibrahim however contended that the changes to the fixed rents were offset by the new taxes: “Our calculation at the time these taxes were introduced were that overall it balances out, but that some resorts pay more.”
Recent changes introduced by the new government to the payment of lease extensions – from a lump sum to an annual basis – have also pulled US$135 million in revenue from the 2012 budget, the ousted Maldivian Democratic Party (MDP) contends.
Economic indicators published by the Maldives Monetary Authority (MMA) meanwhile show a fall in the number of tourist arrivals for March 2012 compared to the previous year, from 80,732 to 76,469. The number of bed nights fell 6.8 percent for the same period, one of only a few recorded declines since the 2004 tsunami. February – a month of high political turmoil and widespread negative international media coverage – recorded a 2.5 percent decline.
An increase in prices would affect established markets already under strain, Ibrahim reiterated.
“It’s hard to say if emerging markets would be put off – China, Russia and the Middle East – maybe not. But [price increases] are affecting the established market. The market situation is not looking good at the moment.”
A survey of nearly 3000 tourists last year reported that 46 percent believed accommodation in the Maldives was too expensive. Soft drinks, alcohol were rated as expensive by 42 percent, while food, water and souvenirs received a similar rating from 41 percent of tourists polled.