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.”
Opposition
“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.
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What will the taxes be used for, or what are they said to be going to be used for?
DRP MP Ali Azim is very racist. According to him the whole taxation reminds of him of the Jewish way of doing things. Before saying such derogatory things about an ethnic group be it Jewish, he should verify if what he said is true. The fact that Israeli citizens do not depend on welfare makes his claim false and untrue. People like him think everyone is a fool and ignorant like them.
The Jewish way of doing things? For some poor souls the only way of debating is to throw in an argument that on the surface appears to be religious protectionism. Unfortunately many fall for this sort of cheap rhetoric. He sounds dangerously similar to Goebbels under early Nazi rule in 1930s Germany.
I bet Qaroon have bought up those honorable members.
This Qaroon in Majlis is like a plague on Maldivian society.
When uneducated and ignorant people like Azim wants to debate on issues like taxation, nothing constructive would come out. In order for us to elect competent MPs, we the constituents also have to be educated. Hope Azim will not make any racist remark in the future. He should at least do some home work on the subject and contribute to the debate in a more positive manner.
Seriously there are a variety of questions that spring to mind. For example;
- Regarding the time-frame: The rush between enactment of GST in October and adjustments made to the import duties in January leaves space for economic uncertainty and hardship. Price fluctuations (although calculated to coincide with the peak season for the tourism industry) might allow for inflation which might affect society adversely.
- Can GST replace import duties altogether? The lack of modern accounting systems in Maldivian SMEs and inevitable dishonesty leaves a large room for doubt. Does the government plan to continue supplementing customs duties with GST? If so, in what way?
- We all understand that the government's deviation from their own legislative agenda as spelled out in their Strategic Action Plan is due to a desperate need for money. However, does the government believe that a system of income tax can be established right away? What about landowners who earn a large portion of their income from the lease of land? Will they declare their income to MIRA with ease?
- To reiterate the question asked in the first comment. We all must ask ourselves. How does the government plan to spend increased income? Debt service would take up a large portion? There needs to be greater debate about government effectiveness with regards to service provision, technological advancement, human resource capacity, wastage, regulatory frameworks.
“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,”
How many hundreds of years do we need to wait yet again for "properly studying" the effects? We have wasted so much time, whilst the rest of the world has marched on, kicking dust in our faces.
There will never be a "right" time. We have to bite the bullet and take this horrible medicine. I just cannot believe these MPs talk about the "suffering" of the citizens. How many of our citizens earn more than MRf 30,000 per month? You only start paying ANY taxes on income above this level. Of course, our hard working MPs will fall into this category straight away!
A large proportion of our population do not earn $1 per day. The income tax levels that are proposed will not affect the vast majority of Maldivians in terms of taxation. The rich will always grumble about having to pay taxes; that's the case everywhere in the world. Our MPs are tycoons or act on behalf of tycoons and they are protecting vested interests.
The next question everyone seem to ask is where does this tax money go? It should be abundantly clear where it ends up. After all, the reason we have to have an Auditor General and an apparatus under him is to look and report on such matters. There are various committees of Parliament with the power to demand detailed accounts of where such money goes. It's not like pouring money into a black hole. There's a lot of undeserved suspcision. I guess that's reasonable given that we've just come out of decades of dictatorship and nepotism.
Could someone ask this Qaaroon if he brought more than a shirt and a pant to Male' when he first entered the world-famous Silent Dictator's killaa???
Shame on u Jabbaar Qaaroon!!! Behen choothukaa bachchaa
"Azim added that citizens should not have to pay taxes even if the bill was passed," Now we know how Azim operates.
Qaaroon did not bring a trouser and shirt to Male when he migrated from his Island.
Good old days the standard dress code for Maldivians was 80 x 80 % sarong.
Qaaroon amassed his ill earned wealth with the blessing of Maldivian spiritual leader, general and dictator and his brother-in-law. He was errand boy the spiritual leader’s wife family.
i understant the importance of taxation but it should be brought very slowly. we dont have the culture, nor a system ready for this. people should be given time and awareness to get ready and understand the consequences. we need to change the whole system that can verify the point of taxation. a typical example: most houses are registered to the father while the children build the house to multiple storeys, allowing to rent half of their area each child bild. withouth this income from rent the life is not sustainable in male', for most families. if the individual floors are not registered to the children the income from all the floors will be registered as income to the owner of the land, the father. this will trigger a huge amount to be paid for tax, which is actually not from the income of the father.
very simply, do we have a system or can bring in a system in 3 months, to verify how much who is earning......
Taxation without representation is tyranny
@Hassan Saeed.
You are right. However there is no incentive to represent without taxation. Only tax makes the individual a stakeholder of the country.
If you dont give tax, you have no stake and why bother even if the whole country goes into drugs..
I guess it is hard for DRP to digest anything good coming out of this administration. I guess we have to increase our numbers.
The talk of more and more study and research before effecting it is just a conspiracy to extend the tax free period for the wealthy. This is the same reasoning Maumoon used to keep democracy away.
Tax system is a dynamic thing and is always evolving. The imperfections can be tweaked away along the way. So there is no such thing as timing.
The only concern I have is the pathetically weak and corrupt judiciary. The filthy rich will simply not pay any tax, give the case to Azima Shakoor in court for half the amount of the tax. She will always win the case, such is the sad state of affairs of our juduciary.