Several resort managers have voiced concern that revenue raising measures proposed by the Finance Ministry will affect the financial viability of the tourism industry while providing little improvement in service or support in return.
The proposed measures were part of an ‘austerity’ package sent to parliament’s Finance Committee last week in a bid to address the country’s crippled financial condition.
Increased government spending – such as the repayment of civil service salaries cut during the former administration, and promotions and lump sum payments to the police and military – has not been offset by additional income.
As a result, the government has sought a succession of loans this year to pay its expenses at a time it is facing political challenges to its legitimacy, and country is facing plummeting investor confidence, a drop-off in foreign aid, an ongoing foreign currency crisis, and the challenges of its 2011 graduation to the UN’s definition of ‘middle income’.
As well as a raft of austerity measures, including the cancellation of electricity subsidies for citizens in Male’ and “reform” of the universal healthcare scheme, proposed revenue raising measures include plans to:
- Raise import duty on oil to 3 percent
- Impose import duty on items whose value exceeds MVR6.4 million
- Raise import duties for liquor
- Introduce GST for telecom services and sale of flats (both are now GST-exempt)
- Raise GST rate for luxury items
- Raise T-GST to 15 percent
- Raise airport service charge for foreigners to $30
- Increase visa fee for foreigners by MVR150
Minivan News spoke to several resort managers about the potential impact of such measures on the tourism industry. Of particular concern was the proposed increase in Tourism GST from 6 percent to 15 percent.
“That would be the biggest hit along with the liquor duty,” observed one manager.
“With the standard 10 percent service charge we’d be talking 25 percent on top. That’s too much,” he said.
Furthermore, a sudden increase in T-GST would force resorts to absorb the increase, due to contractual obligations.
“If such an announcement came after [the] contracts are signed, many operators would be forced to absorb the additional percent again,” the manager observed.
“Higher duty on liquor would be the most directly felt increase in guests’ daily extras. Our sales would take a hit,” he added.
An increase in already high oil prices due to government import duty would further increase prices.
“Oil has become more and more expensive since oil was first used. Another rise in prices would be just another rise, which, in the case of oil, would come anyway. Of course extra costs will eventually be passed on also from suppliers and will at one point always end up on the client’s bill. How much more of such a hike our clients will take, I couldn’t say. Already now the low- and mid-priced market segments are moaning,” he said.
The increase in airport charges to US$30 for foreigners would also increase the overall cost of the destination for potential visitors.
“Many other places charge one as well and I guess it has come to be accepted. If this is then garnished with higher visa fees, taxes of 25 percent, an eco-tax, bed-tax and the whole lot, it might quickly get too much though,” the manager warned.
Another resort manager told Minivan News that given the country’s almost total reliance on tourism, the government “needs to see itself as a tourism body as much as a government of a nation.”
“Tourism bodies in a general have five key responsibilities in order to increase the economic benefit of tourism for a nation,” he said: “Attract guests to the destination, have them stay as long as possible, have them invest back as much as possible into the local economy, have them recommend the destination to their friends and/or return themselves, and encourage balanced tourism development.”
The Finance Ministry’s proposed revenue raising measures “have negative implications for all five points of any basic tourism body plan,” he observed.
“As seen in the past 2-3 years, most countries have based their austerity strategies on reduced government expenditure and encouraging increases in revenue growth. This has been completed by efficiency plans for civil servants and key strategies to increase revenue,” the manager noted.
“In its actions over the last five months, the Maldives’ government has increased civil servants’ salaries, increased other costs, and are now looking at taking action that will compromise their main revenue stream. This is very different to other countries with similar financial challenges,” he stated.
“Whilst I understand that there is a need for a major revision on the Maldives economy, I would hope that cost reduction measures are implemented within the government that will balance the need for increased taxes on Maldives’ tourists. Areas of increased taxation such as oil and customs duty would be more acceptable psychologically for the tourism economy rather than an increase in direct tourists taxes and charges,” the manager added.
According to a survey conducted by the Tourism Ministry in 2011, 46 percent of tourists to the Maldives believed that the accommodation was too expensive.
Soft drinks, alcohol were also rated expensive by 42 percent, while food, water and souvenirs received a similar ranking from 41 percent of tourists polled.
Tourism Minister Ahmed Adheeb and Deputy Tourism Minister Mohamed Maleeh Jamal were not responding at time of press.