Government’s revenue raising bills sent to committee

Three bills submitted by the government to raise additional revenue have been sent to a committee of the full parliament for further review.

Today’s extraordinary sitting of the People’s Majlis was held during the ongoing recess upon request of 27 government-aligned MPs. The government contends that failure to pass the revenue bills during the last session of 2013 was hampering implementation of the budget.

The three bills accepted today included an amendment to raise the Tourism Goods and Services Tax (T-GST) from eight to 12 percent as well as two amendments to the Tourism Act in order to reintroduce the discontinued flat US$8 bed tax and to require resort lease extension payments to be paid as a lump sum.

While two of the bills were accepted with 38 votes in favour and 26 votes against, the third was accepted with 37 votes in favour and 26 votes against.

The full Majlis committee formed an 11-member subcommittee to review the bills, including five opposition MPs and six pro-government MPs. The extraordinary sittings have been scheduled to resume on February 3.

Among other revenue raising measures proposed by the government are revising import duties, raising airport departure charge for foreign passengers from US$18 to US$25, leasing 12 islands for resort development, and introducing GST for telecommunication services.

In December, parliament passed a record MVR17.5 billion (US$1.16 billion) budget for 2014, prompting President Abdulla Yameen to call on the legislature to approve the revenue raising measures to enable the government to finance development projects.

“Double taxation”

MPs of the opposition Maldivian Democratic Party (MDP) voted against all three pieces of government-sponsored legislation, expressing concern over potential adverse effects on the tourism industry.

While some government-aligned MPs echoed the concerns, most argued that increasing government revenue was essential for providing public services and financing government operations.

MP Ibrahim Mohamed Solih, parliamentary group leader of the MDP, has previously contended that raising T-GST while reintroducing the bed tax would amount to “double taxation.”

Following the Majlis’s failure to extend the tourism bed tax before the end of last year, Finance Minister Abdulla Jihad told local media that the resulting losses to state revenue would be MVR100 million a month.

In an interview with Minivan News last week, Tourism Minister Ahmed Adeeb said parliament had not considered the impact on the budget when it broke for recess without extending the bed tax.

“Normally, budget and government revenue earning bills are passed together. But here, the parliament goes into recess after passing the budget, leaving the income bills pending for after that. And even then, they often just fail,” he said.

“This causes the budget to expand, but there’s no way for the government to earn enough to implement it. The T-GST [Tourist Goods and Services Tax] matters even more to the state income. The state keeps expanding, the allowances and salaries keep increasing, but the income for all of this still depends on the 25,000 tourist beds. Unless we expand this, how can we increase what we earn? We can’t keep expanding the state, and then squeezing the existing tourism sector without expanding it.”

On January 6, Adeeb issued a circular to all tourist establishments informing the resorts that the government was seeking reintroduction of the bed tax.

Resort lease extensions

Under the amendments proposed to the Tourism Act, resort leases can be extended to 50 years with a lump sum payment of US$100,000 per year.

Resorts with approved lease extensions – currently paying for the extension in installments – would also have to make the full payment within three months of ratification.

Following the controversial transfer of presidential power in February 2012, the administration of President Dr Mohamed Waheed allowed extended resort leases to be paid in installments, rather than upfront at the end of the lease.

In April 2012, the Maldives Inland Revenue Authority (MIRA) revealed that the total revenue collected in March 2012 was 37.9 percent lower than the projected revenue “mainly due to the unrealised revenue from the Lease Extension Period.”

At the time of the Tourism Ministry’s announcement of the extension payment changes, the government had already received lump sum payments from 25 resorts equating to US$40 million and was expecting nearly US$135 million more from 90 resorts.

“The [administration of former President Mohamed Nasheed] had requested that those resorts extending to a 50 year lease pay in a lump sum,” former Tourism Minister Dr Mariyam Zulfa explained to Minivan News at the time.

“[But] while I was Tourism Minister, Gasim Ibrahim and Ahmed ‘Redwave’ Saleem kept pressuring me to let them pay on a yearly basis. They didn’t want to give any money to the government, and soon after the government changed they got what they wanted. [The installments] will only be payable at the end of the current lease periods – it is a huge loss to the treasury.”