“Tariff rationalisation a positive to economy”: Care Ratings Maldives

The new tariff structure that came into force on January 1, 2012 will have a positive impact on the domestic economy, predicts an economic review report for December released by Care Ratings Maldives this week.

Care Ratings Maldives became the first credit ratings agency recognised by the Capital Markets Development Authority (CMDA) in May 2011 to carry out ratings of debt instruments and facilities.

“The new export-import tariff structure may be viewed as a pragmatic policy, designed to diminish structural fragilities of the Maldivian economy,” the report found.

Amendments to the Export-Import Act proposed by the government as part of its economic reform package was passed by Parliament on November 21 and ratified by the President shortly thereafter. Import duties were subsequently reduced and scrapped entirely for a range of items.

Under the new tariff structure, the report observes, “products such as metals, minerals, chemical products and manufactured goods, which together constitute about 57 percent of total [imports], have by and large been awarded with a reduction in tariffs.”

However it noted that tariffs or import duties for certain items have been significantly hiked, such as tariffs for tobacco from 50 to 150 percent and non-biodegradable plastic bags from 200 to 400 percent.

The report also noted that the contribution of import duties to government revenue has been declining, from 73 percent in 2008 to 46 percent in the first ten months of 2011.

Meanwhile the implementation of new taxes, such as the Goods and Service Tax (GST) and Business Profit Tax (BPT), is expected to account for a higher portion of government income.

“It may be noted that the Maldivian government is making a conscious attempt at augmenting revenues from direct tax sources, rather than indirect taxes,” the report stated.

The report predicts that “the largest beneficiary of this new tariff structure” could be the secondary sector as tariffs have been lowered significantly (between 10 percent and 100 percent reduction) for inputs of the manufacturing and construction industries.

As a result, the report forecast that the contribution of both sectors to the GDP could reach pre-recession levels of five and 11 percent, respectively.

“The reduction in import tariff would impact the construction sector by freeing resources for projects under implementation and reducing their costs during gestation periods,” the report explains, adding that the construct boom “could boost the tertiary sector of the economy as well.”

Retailers meanwhile expect prices of foodstuff to fall in the wake of the import duty waiver. Items with GST rate set at zero percent for which import duties have now been scrapped include rice, flour, sugar, salt, milk, cooking oil, eggs, tea, fish products, onions, potatoes, fruits and vegetables, baby food, diapers, gas, diesel and petrol.

While the State Trading Organisation (STO) announced a reduction in diesel and petrol prices, Maldivian airline reduced airfares for domestic flights by Rf50 in line with the reduction in import duty for jet fuel.


11 thoughts on ““Tariff rationalisation a positive to economy”: Care Ratings Maldives”

  1. Firstly, tariff is not rationalized. That was not what was done. Tariff rationalization is done to carry out an industrial policy. Lacking such a policy, one wonders on what basis tariff was 'rationalized'.

    What the Government did was the lowering of tariff because there is no need for those tariffs when tax is introduced. No magic there.

    Care Rating - please get it right. You have attributed a wrong reason to what the Government did. Tariff has yet to be rationalized.

  2. Care Ratings employs former Finance Minister in Nasheed's Cabinet and MDP elite-cum-financier Ali Hashim as a consultant. I am sure a lot of people will accuse me of being petty but that alone casts doubts on their ability to deliver an unbiased assessment (if there is such a thing anyway).

    That said, moving from import duties to direct taxation is a good thing in the medium and long terms.

    From a populist perspective however, the much-touted reduction in price of consumer goods will not take hold as high government expenditure and debt-spending coupled with the decreasing foreign currency receipts will of course cause the real exchange rate of the US dollar to trend upwards.

    It would be best not to politicize this matter and explain to the public of the economic hardship expected during this period however that would be too idealist to expect from either the opposition or the incumbent administration.

    Like one commentator above has mentioned, the amendments brought to the import-export act were made in a rushed and haphazard fashion. There is really not much of a policy direction under which the duties were revised.

    Also, a boost to the Construction industry will just create excess liquidity and more demand for the dollar. So once again, from a populist perspective, one fails to see much to celebrate in the near term.

  3. Maldives finally has a modern economy and can stand on its own two feet. This is massive progress and a mile away from the super haves and have nots of yesteryear!

  4. It is good to bring basic items to zero level duty.
    But unfortunately we pay the high price for all food items we consume.
    There is no mechanism to check the shops if they are selling the duty reduced items with fair price.

  5. We can put a finger on the price level by comparing them with the import price and other expenses. If we know about 50% of the C&F price is the total cost of imports, we can say if the general price level is higher than it must be without the duty. The price depending on the rate of duty applicable will be less now by 9% - 19% than it was before.

  6. Everyone in the MDP government including President Nasheed is touting the reduction of the price of goods due to the lowering of tariffs.

    Just days after the tariff reduction came into effect, the Great Glorious Good for the Nation Maldives Ports Limited raised the price of their services by 15%!

    Now, even a primary school kid can work out what that means. Seems like President Nasheed lacks such ability. The right hand doesn't know what the left hand does in this government. How the bloody hell are you guys running this enterprise called Maldives? Who is actually running this place for that matter?

  7. Thank you Ahmed.

    However I digress, most University graduates in the Maldives let alone primary school students lack the awareness and know-how to figure out basic economic facts for themselves.

    Why just last day I heard an educated middle-class person screaming at retail shops for charging GST to customers rather than pay it to the government themselves.

    I guess we must all prepare for a longer period of economic hardship than we should have had to endure if better steps were taken towards economic recovery.

  8. Care Rating seems to be doing a good job. I just hope that Maldivians start their own rating companies soon as Rating companies will become a necessary part of the future economic infrastructure, difficult as that may be.

    Note to all conspiracy theorists: Care Ratings is partly owned by the Indian Government, and is the biggest Indian owned and 2nd largest rating agency in India. No small fry.

  9. I think people who comment against are not living in Maldives and couldn't understand simple facts as 98-68=30. This is how much we saved from a packet of coffee. It's just tip of an iceberg where prices are crashing down. We don't need theories we need facts on the market. Go their and observe yourselves.

  10. Control vehicle imports and save the foreign currency from being drained out.Tommorrow will not be the same as today.

  11. @Skeptical Inquirer:

    The fact that a company, firm, institution or person is based in a foreign country or is widely respected in that community does not absolve them of all suspicion.

    There is no conspiracy afoot. Selective emphasis is an easy to use and oft-employed method of bias. We all have agendas and affiliations, whether we are foreign, local or (I'm assuming) extraterrestrial.


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