Government to consult tourism industry on potential T-GST increase

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.


25 thoughts on “Government to consult tourism industry on potential T-GST increase”

  1. This is again a binder made by MDP. We should have kept the Resort land rent as before and then introduce the new TGST where by the income to Government would have be very healthy.

    But for the sake of few business people, specially to people from MDP

  2. The coffers are controlled with idiots who only wants to enrich themselves. They are printing money to win the next elections.

  3. GST was introduced, 3 months later customs duties were eliminated on most goods. Result? Only limited increase in the government revenue. Eliminating import duty did not reduce the prices either. This was in fact a blunder and benefited a few businessmen.

    Increasing GST is okay. Increase the rate, inform the industry and make it take effect in a year. Their concerns would be met then. Many developed countries have GST and sales taxes much higher than the current 6% TGST. In some countries it is as high as 15%. I do not think tourist arrivals from these markets would be affected as they are used to the idea...

  4. Increasing T-GST and a $27 exit charge at the airport?
    Way to annoy the thousands of tourists who come to the Maldives every year- Check out Tripadvisor- so many Europeans (Brits especially) are cutting down on holidays to the Maldives as they are becoming too expensive.

    Here's a RADICAL idea... why not charge an income tax on the highest earners and raise some money that way. That's what most countries do.

    Or oops, wasn't I supposed to mention the elephant in the corner?

  5. It is dangerous to give the keys of the coffers to Yaameen who is controlling MMA and Jihaad.

  6. It is clear that this govt. that assumed control is only interested in looking after the rich. The rest of the population seem spineless to stand up to them. The Maldives will get the country they deserve.

  7. Yes - increase TGST to 12% or may be 25% (easier to calculate).

    Together with 10% Sercvice Charge, 28 US$ ADC, some 20 US$ ASC and around 70US$ Air transport Charge (in GE), around 120 US$ Additional Fuel Charge for Europe to Maldives-flights this will all end up in a complete decrease in tourist visits to the Maldives.

    You should not over-emphasize on tourist taxes, but look again on income taxes and where all these Dollars go ...

    With the news I got during the last 2-4 months, I will stop my annual visits to the islands from now on and tell friends to do the same.
    This will keep at least some kafirs away from your islands; may be you get replacements, not caring about this rip-off.
    Sadly GEtouri

  8. @Lubna Ali on Wed, 9th May 2012 12:17 AM

    "It is dangerous to give the keys of the coffers to Yaameen who is controlling MMA and Jihaad."

    And what exactly is Yameen going to do with that? Has Yameen ever been convicted of any wrong doing? There's a lot of whisperings as well as loud accusations from within the hardliners of MDP against Yameen. Fact of the matter is, nothing has been ever proven against the guy.

    In my book, the chap is innocent until proven guilty.

  9. Income tax is the solution I suppose! The bill has been halted due to request from Thasmeen's DRP it seems... This is no way to run an economy!

  10. @Expat

    I agree. We need to bring in income tax. Does anyone know why this hasnt happened?

    We also need to get our resort owners to pay their rental fees upfront.

    What they are doig now is putting off what they owes the state and to get the tourists who they bleed dry anyway to pay for the shortfall.

    The IMF should be advising Dr Waheed to reverse their decision to allow resort owners to pay what they owe in instalments.

    I appreciate that Dr Waheed must find it difficult to put this kind of pressure on the resort owners. After all it was they who put Dr Waeed in the chair he occupies today.

  11. Time to overthrow the government again! If the big tourist resort owners were paying their taxes we would not be having a huge budget deficit! They had to go and overthrow Nasheed's government to not pay taxes! Are they going to pay an increase in 6 % on GST? Please give me a break!

  12. never gonna happen. most resort owners are either in the govt now or MPs. adheeb, why did you tell everybody not to pay GST?

  13. @Expat, you gotta be kidding right? A coup was brought about so that the resort owners and the rich would not have to pay income tax, and that things could be made easier for resort owners and for them to pay less money to the state. Now all that hard work is not going to go down the drain just because the economy is in a mess. Tax the tourists and the poor, Maldives shall be ruled according to the whims of the rich. This is truely a Paradise for the rich now.

  14. Govt should have raised TGST a long time ago even if it meant ruffling a few 'wealthy feathers' in parliament. National economy comes first and not personal fortunes of a few, engay!!

  15. There is a much simpler solution : INCOME TAX on all income above say MRF 1 million - let pay the people who have money - no need that for example resort owners do not pay any tax from their private incomes.
    We the people get all burn on our heads, those capitalists never contribute

  16. Now we are facing the consequences of the failed economic policies by Mr Anni. He should held accountable for this mess!!

  17. Over tax the tourist on top of the already unrealistically high charges made by resorts coupled with the inferior service and you won't have to worry about the tourists anymore - we won't be going to the Maldives! Who wants to pay 5 and 6 star prices for 3 star resorts and service? There are plenty of holiday destinations in the world that give true 5 star facilities and service.

  18. willman you are exactly right! maldives is overrated anyways!

  19. @ Defunct Dhaoni

    TGST is what tourists have to pay, not resort owners.

    We need resort owners to pay income tax and to pay their rent for the resorts they have leased from the state.

  20. If you ask someone if prices are expensive, they will say ... "yes expensive". But what we need to do is to benchmark it to another similar one.
    Government should come up with their proposed deficit reducing action plan (i.e. pay commission to revise salary of politicians, independent commissions, civil service, police, military etc... and further review the salaries paid of none-executive board members of government joint companies).
    Income tax is long overdue, but how many politicians are sincere to implement it?
    Maldives politicians are trying to run the country beyond their means without payiong for anything.

  21. @aa

    The economic policies of Nasheed's government were very good, very sound. He proposed income tax from the very rich so we have more revenue for social development. He asked resort owners to pay their rent upfront in return for an extension of their lease. He offered business opportunities for those who wished to invest in development in our islands. In the three years he was in office the Minsitry of Islamic Affairs saw the highest paid zakaath ever. he was creative about how to increase revenue. It just didnt suit those who were being asked to distribute their wealth.

    This is all this is about. This is what the coup was about.

    The wealthy just did nit want to pay up.

    They also did not want other ordinary Maldivians to start doing business with oversas investors. Apparently only the chosen few had the right todo business with overseas investors.

    The shortfall we have right now is that the resort owners took the lease extension, but have not paid up, ministers in the new government has called for GST not to be paid, and income tax never got off the ground.

    A lot is being said about PPP and islands given by Nasheed’s government for investors in return for their investment in development projects.

    As if PPP did not exist in the Maldives.

    As if PPP was an invention of President Nasheed.

    What is Dhiraagu? What are the resorts?

    Name me one resort in the country which does not have an overseas investor. Islands given to those who Gayoom patronised, many of whom simply handed over the islands to foreign investors on long term lease, making multimillion dollar deals in the process. What do you call that? Isnt that PPP?

    And what did the country get from that? A few thousand dollars in rent?? And a few millions into the pockets of those who made the deals?

    For 30 years these people had a tax free haven in the Maldives and showed absolutely no interest in contributing to the development of the people of this country, be it education, health, infrastructure development. Where was their corporate social responsibility?
    Oh yes, a few dollars here and there, a few scholarships to people who were of use to them. They couldn’t even set up a decent training programme for our youth in the hospitality industry. Except for Four Seasons name one resort which catered for our young people leaving school, I mean a programme linked to skills training and employment with a career pathway.

    So if you ask me, it was not Nasheed who has messed up our economy but Dr Waheed and the resort owners who put him in office.

    And don’t forget, two new ministries, new ministers on overseas trips galore, wage tops ups of all police and army personnel, new police recruits, top ups of the civil service to buy their loyalty, and all that money to keep people silent on what really happened on February 7. Thats a lot of money, aa.

    Last but not least,aa, have you forgotten that when Nasheed took over as President, that we were bankrupt? The loans Gayoom had taken which Nasheed had to keep paying, the hugely inflated civil service which Gayoom used to reward those faithful to him, and to keep their loyalty, printing money to bridge the deficit....have you forgotten already?

    If you have, then all I have to say is we do not deserve someone like Nasheed who cared, really cared and continues to care for his people.

    I am not saying here for a moment that I believe Nasheed did everything right, who does? But trashing his economic policy is choosing to continue to be in this abusive relationship we have with those who have taken us for aride for just far too long.

  22. you said name me one resort: MEdhufushi island resort, filitheyo island resort. bathala island resort. get your facts right brother.

  23. Mohamed, you clearly sound like someone who lost something (maybe an island or some big project) given by Anni I suppose. Unfortunately for you those corrupt days are over and this country does not only belong to the yellow party people.

  24. @aa

    There you go, you think we only care if we get something. Believe it or not, there are some of us who do not need to get something to care about something.

    Would you believe it if I said Anni didn't give me anything? No you won't, because you cannot believe I can write what I have written without a personal motive.

    And let me remind you that there was a council called The National Planning Council which had representatives on the council from the civil society and the community . Why is it Anni who is supposed to have "given" these islands away?? Every one of those people on the council are accountable for the decisions they made.

    @Hussain Shiyam
    I stand corrected. Thank you


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