Parliamentary debate on the government’s economic reform package began today with preliminary debate on legislation to introduce a five percent General Goods and Services Tax (GST).
The International Monetary Fund (IMF)-sanctioned economic reform package also includes bills on business profit tax and income tax as well as amendments to the Tax Administration Act and the Import-Export Act.
Introducing the draft legislation, MP Mohamed Aslam of the ruling Maldivian Democratic Party (MDP) explained that the government’s aim was to replace the current indirect tax in the form of import duties with direct taxes.
“When this bill becomes law and the government stops depending on import duties for income, the main benefit would be that businesses would not have to pay a tax before selling their goods,” he said. “As a result, businesses will expand, there will be increased cash flow for investment and business confidence will be strengthened.”
Once direct taxation was in place, Aslam continued, import duties would be reduced or eliminated on January 1, 2012 concurrently with a hike in the Tourism Goods and Service Tax (TGST) introduced this year from 3.5 per cent to 6 per cent.
Moreover, the government plans to raise the TGST to 10 per cent in 2013 and abolish the current bed tax of US$8 per tourist in the same year.
If the legislation is enacted, said Aslam, tax revenue in 2012 is estimated to be Rf3.2 billion (US$249 million) and Rf4.9 billion (US$381.3 million) in 2013.
The “fundamental purpose” of taxation was equitable distribution of wealth and reducing income disparity, Aslam said: “This is how it’s done in civilised societies. Without taxation, we cannot bring development and prosperity for the people.”
“I believe that while taxation is important, the dates for introducing taxes as well as the tax rates should not be determined before properly studying the effects on the whole economy,” said Dr Abdulla Mausoom of the main opposition Dhivehi Rayyithunge Party (DRP).
As a result of inconsistency and “sudden changes to the government’s economic policy,” Mausoom claimed that investors had lost confidence in the Maldivian economy.
While welcoming the elimination of import duties, the DRP MP for Kelaa urged the government to protect the local agriculture industry from foreign competition.
Mausoom also called on the government to revise government working hours to allow civil servants to complement their incomes with part-time jobs, arguing that civil servants deserved a 20 percent pay rise in light of the decision to float the exchange rate within a 20 percent band.
Mausoom further claimed that the main source of “wastage” in the budget was expenditure on political appointees.
“The government should not waste tax revenue needlessly,” he said. “There was a time when the King took taxes from merchants, impoverished the people, and used it for revelry. That time is past.”
“At a time when the gap between rich and poor is widening, I don’t believe at all that this is the best time, the perfect time, the ripe time to take taxes,” said DRP MP Ali Azim, adding that “such an important step must only be taken after proper research and study.”
Azim however conceded that taxation was necessary for the government to provide public goods and services, but repeatedly insisted that the time was not right.
“I am reminded of the Jewish way of doing things,” he said. “That is, further impoverishing those who are already poor. Forcing citizens to beg and telling them, if you sign this [membership] form, you’ll get things done.”
Azim added that citizens should not have to pay taxes even if the bill was passed, claiming that the government continued to disregard laws passed by parliament if it did not suit the current administration.
DRP MP for Vaikaradhoo Ali Arif argued that the public would be adversely affected if a number of different taxes were introduced all at once.
“We are now taking seven per cent from every worker as a contribution to our pensions,” he explained. “We are saying do this gradually. When you take everything at once, the Maldivian citizen is going to fall down.”
Maafanu West MP Abdulla Abdul Raheem, who defected from DRP claiming that “a few tycoons” were opposing taxation, meanwhile underscored the need for sustainable sources of revenue by pointing out that the state was in debt to the tune of Rf18 billion (US$1.4 million) because of deficit financing through loans.