Revenue figures reveal economic impact of change in lease extension policy

The Maldives Inland Revenue Authority (MIRA) released figures earlier this week showing the extent to which the change in island lease payments has affected the Maldivian economy.

According to MIRA’s figures, the total revenue projected for March was Rf1044 million [US$ 68 million], but had received 37.9 percent lower than the projected revenue “mainly due to the unrealised revenue from the Lease Extension Period.”

MIRA had anticipated to receive a total of Rf375 million [US$ 24 million] for lease extensions – however, due to government’s recent decision to accept resort island’s lease extension payments in installments – the  income received dropped to nearly Rf23 million (US$1.5 million).

These figures were published the same week that the International Monetary Fund (IMF) warned the People’s Majlis that drastic measures must be made to reduce the government’s budget deficit. At the same time, the government announced that it was promoting a third of the police force and paying two years of allowances to defence personnel.

The IMF noted that the budget figures it had seen did not reflect the lost revenue resulting from the change in collection of lease payments.

Concluding the IMF’s visit to the country, the group’s representative suggested that the government reduce civil service pay and benefits, re-introduce recently removed import duties, increase the Goods and Services Tax (GST) and increase the bed tax by 50 percent.

The IMF’s expressed it fears that the government may exhaust its reserves if it did not resolve its budgetary imbalances: “Immediate steps have to be taken. This is the reality, we have to face it.”

MIRA’s figures appear to bear out the fears of the former Tourism Minister Dr Mariyam Zulfa, who predicted that the new government, having “over-interpreted” the repayment clauses in the Tourism Act, could expect to see up to $135 million taken from government revenues in the next year.

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 more from 90 resorts.

“The lease extension is about increasing the asset value of the properties. In the Maldives, all the islands actually belong to the government and when the second amendment to the tourism law came into place it gave the option for resorts to extend the existing 25 year leases to 50 years,” explained Dr Zulfa, at the time.

“A time period was given and there is a clause [in tourism lease extension regulation] that stipulates that the payment must be done in completion before the lease period can be extended. So, the Nasheed government had interpreted that clause as the payment to be paid in full for the period extended. So, because the wording is such that the payment must be complete before the extension is granted, we interpreted it as the full payment.”

“But there is another clause [in Tourism Act] which says the manner in which the payment is calculated is on an annual basis. This [current] government has over-interpreted that clause and has said that the payment has to be made on an annual basis, but I have always insisted that the value of the government assets must not be allowed to decrease because the payments go to funding welfare services, housing projects, infrastructure projects, health services and so on that would benefit the local community,” she said.

“The current government has not only allowed payment to be made on an annual basis but allow for the payment to start at the end of the 25 year period, which is years away. It is a huge loss to the government treasury, about US$150 million, and I think as a result that a lot of people will be deprived of the many projects that we have started for the benefit of the communities across the atolls,” argued Zulfa.

Meanwhile, the Tourism Minister Ahmed Adheeb has said that the government would reimburse US$ 40, accepted as lease extension payments prior to the change in policy  by deducting the amount from the rent payments.

Explaining the decision at the time, Adheeb also said that the government was happy make things easier for the tourism industry wherever it could, after it had contributed so much to the economy through taxes.

He further claimed that the government was seeking to act in line with a December 2011 High Court ruling against Nasheed administration’s interpretation of the relevant clause in lease extension regulation.

After the ruling was made, and before it lost control of the government, the Maldivian Democratic Party (MDP), had stated its intention to appeal the High Court’s decision. Dr Zulfa reports that the current government has removed this appeal from the high court.

Likes(0)Dislikes(0)