Government scraps plan to impose import duty on staple foodstuff

The government has reversed its decision to impose a 10 percent import duty on staple foodstuff such as rice, flour, wheat and sugar, Minister of Tourism Ahmed Adeeb has revealed.

“Emergency economic council meeting ongoing where President [Abdulla] Yameen has just decided not to impose any duty on sugar, rice, flour (staple foods),” the council’s co-chair tweeted this morning.

Speaking at a press conference at the President’s Office later today, Adeeb said parliament and the Progressive Party of Maldives’ parliamentary group have since been informed of the decision.

“The president’s decision was made in light of requests from a lot of people as well as the current situation [with the capital’s water crisis] we are faced with,” he said.

Finance Minister Abdulla Jihad told parliament’s budget review committee last month that the government anticipated MVR533 million (US$34.5 million) in additional income from import duties.

The new duties were to represent 15 percent of the new revenue anticipated in the 2015 budget.

Revising import duties

Revising import duties was among several revenue raising measures in the record MVR24.3 billion (US$1.5 billion) state budget for 2015 currently before parliament.

Government-sponsored amendments (Dhivehi) to the Export-Import Act – which proposed raising custom duties from the current zero rate to 10 percent for staple foodstuffs – were subsequently submitted to parliament last month.

Scrapping plans to levy import duties on staple foodstuff from October 2015 was meanwhile among several amendments submitted to the budget by opposition Maldivian Democratic Party (MDP) MPs last week.

The minority party has issued a three-line whip for its MPs to vote against the budget if none of the proposed revisions are passed.

During last month’s parliamentary budget debate, opposition MPs strongly criticised the proposed tax hikes, contending that the burden of higher prices of goods and cost of living would be borne by the public.

The current administration’s economic policies – such as waiving import duties for construction material imported for resort development as well as luxury yachts – benefit the rich at the expense of the poor, MDP MPs argued.

In addition to a 10 percent tariff for oil, the government’s amendment bill also proposed raising custom duties for tobacco from 150 to 200 percent and raising the duty for a single cigarette to MVR1.25.

Additionally, a 20 percent custom duty would be imposed for luxury cosmetics and perfume and a 200 percent custom duty for land vehicles such as cars, jeeps, and vans.

The forecast for additional revenue for the 2015 budget was MVR3.4 billion (US$220 million), including US$100 million expected as acquisition fees for investments in special economic zones and MVR400 million (US$25.9 million) from the sale and lease of state-owned land.

The other measures included introducing a green tax of US$6 per night in November 2015 and leasing 10 islands for new resort development.

Tariffs were last revised in April this year after parliament approved import duty hikes for a range of goods proposed by the government as a revenue raising measure.

Targeting subsidies

Adeeb meanwhile told the press today that the government still planned to shift to a model of targeting government subsidies to the needy as part of efforts to consolidate public finances.

In his budget speech to parliament last month, Jihad also revealed plans to revise the electricity subsidy, which he said currently benefits the affluent more than the needy.

Targeting the electricity subsidy to low-income families or households would save 40 percent of the government’s expenditure on the subsidy, Jihad explained, and allow the government to provide a higher amount to the poor.

While Maldivians were not legally required to declare income and assets in the absence of an income tax, Adeeb said today that the National Social Protection Agency (NSPA) currently used criteria for means-testing for subsidies.

Minister of Economic Development Mohamed Saeed meanwhile noted that the International Monetary Fund (IMF) has recommended targeting subsidies and reducing recurrent expenditure to reign in the fiscal deficit.

“The electricity subsidy is one that goes to even the richest strata of society. Basic food subsidies are being enjoyed now by the resorts, and never mind the resorts, are being enjoyed by wealthy foreign visitors who stay at the resorts,” Dr Koshy Mathai, resident representative to Sri Lanka and Maldives, told MPs on the public accounts committee in February.

“That to us seems like a totally unnecessary policy.”

He added that “substantial savings” could be made from the budget by targeting subsidies to those most in need of assistance.

Meanwhile, in May, MMA Governor Dr Azeema Adam called for “bold decisions” to ensure macroeconomic stability by reducing expenditure – “especially the un-targeted subsidies.”

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MDP, JP MPs propose 19 amendments to 2015 budget


MDP, JP MPs propose 19 amendments to 2015 budget

Opposition Maldivian Democratic Party (MDP) MPs and Jumhooree Party (JP) MPs submitted 19 amendments at yesterday’s sitting of parliament to the record MVR24.3 billion (US$1.5 billion) state budget for 2015.

Among the MDP’s nine amendments were scrapping plans to impose a 10 percent import duty on staple foodstuff and oil and allocating MVR100 million (US$6.4 million) and MVR75 million (US$4.8 million) respectively to provide subsidies for fishermen and farmers.

Other proposals included adding persons with disabilities and single parents as categories eligible for government subsidies to the poor and requiring the finance ministry to submit quarterly reports to parliament every three months concerning the implementation of the budget.

The minority party has issued a three-line whip for its MPs to vote against the budget if none of the proposed revisions are passed.

The JP’s 10 amendments meanwhile included providing MVR50 million (US$3.2 million) in subsidies to fishermen and MVR40 million (US$2.5 million) to farmers, ensuring sufficient funds for local councils and allocating MVR5 million (US$324,254) out of the contingency budget for local NGOs that provide education and training to persons with special needs.

The party also proposed conducting a survey to determine discrepancies in salary and allowances among state employees.

The 19 amendments were proposed after Progressive Party of Maldives (PPM) MP Ahmed Nihan – chair of the budget review committee – presented a report prepared by the committee following its review process

While the committee had passed the budgetlast week without significant changes to revenue or expenditure, pro-government MPs proposed a number of recommendations to reduce recurrent expenditure.

However, amendments proposed by MDP and JP MPs during the budget review process did not pass at the committee.

Reflecting its combined 48-seat majority in the 85-member house, PPM and coalition partner Maldives Development Alliance MPs held a voting majority on the committee.

During yesterday’s debate on the budget committee report, JP Leader Gasim Ibrahim warned that introducing new taxes could damage the economy and the tourism industry.

The business tycoon claimed that Seychelles and Mauritius “went bankrupt” when tourists stopped visiting due to excessive taxation.

Occupancy rates at Maldivian resorts declined in November as a result of imposing the reintroduced US$8 bed tax along with a 12 percent Tourism Goods and Services Tax (T-GST), Gasim contended.

Industry insiders recently told Minivan News that the high-end resorts would struggle to deal with any additional taxation following the recent rise of T-GST.

According to the Maldives Monetary Authority’s monthly economic review for October, however, the occupancy rate during the month remained unchanged at 81 percent compared to the same period last year.

In October 2014, total bednights rose marginally in annual terms while the average duration of stay decreased slightly and stood at 6.0 days,” the central bank noted.

Gasim meanwhile said the JP would vote for the budget despite misgivings, which included lack of funds for establishing pre-schools and insufficient funds allocated for independent institutions and the judiciary.

Adjourning yesterday’s sitting, Speaker Abdulla Maseeh Mohamed announced that the amendments would be put to a vote next Tuesday ahead of a final vote on the 2015 budget.

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Funds allocated for councils in next year’s budget lower than 2014, says LGA

Local Government Authority (LGA) CEO Dr Ahmed Shukry told parliament’s budget review committee yesterday that funds allocated for city, island, and atoll councils in the 2015 state budget was lower than this year’s budget.

Shukry said the amount allocated for the Malé City Council, six atoll councils and 43 island councils was MVR25 million (US$1.6 million) less than this year.

If the requested amount is not provided, Shukry said many councils would face difficulties paying salaries and utility bills, which was already a recurring issue.

In addition to the LGA, a number of independent institutions, the National University of Maldives, and the judiciary have told the budget committee that the finance ministry has not allocated the requested amount of funds in the record MVR24.3 billion (US$1.5 billion) state budget for 2015.


MPs quiz finance minister about revenue raising measures

MPs on the budget review committee quizzed Finance Minister Abdulla Jihad yesterday about revenue raising measures proposed within the record MVR24.3 billion (US$1.5 billion) state budget for 2015.

Briefing the committee yesterday (November 10), Jihad explained that MVR3.4 billion (US$220 million) in additional revenue is anticipated from raising import duty rates from July onward and introducing a ‘green tax’ for tourists.

Additionally, acquisition fees from investments to special economic zones (SEZs), income from the home ownership programme, and leasing 10 islands for resort development would help raise the forecast revenue.

The minister also told the committee that domestic debt had reached about MVR20 billion (US$1.2 billion)- 39 percent of GDP -making the rolling over of T-bills “a nightmare”.

The government was considering increasing custom duties “mostly for luxury items, or items that are harmful to the environment or health,” he said.

The cabinet’s economic council has not yet finalised the import duty or tariff revisions, Jihad noted, though he did reveal that the items under consideration include tobacco, perfume, and vehicles.

Tariffs for tobacco would be raised from the current 150 percent to 300 percent while duty would be raised from 100 to 150 percent for cars, and zero to 10 percent for perfume, Jihad said.

Asked if higher custom duties would lead to higher prices, Jihad said the impact on the inflation rate would have to be studied, which would take time to complete.

Jihad stressed that the government has ceased deficit monetisation – borrowing money from the central bank to finance the deficit – in May, as a result of which the inflation rate was reduced to 1.4 percent.

In April, parliament approved import duty hikes for a range of goods proposed by the government as a revenue raising measure.

Meanwhile, the forecast for income from SEZ acquisition fees is US$100 million, Jihad revealed, which is expected by August 2015.

A further MVR400 million (US$25.9 million) is forecast from leasing and sale of land from across the country, Jihad said – in particular, plots from unused reclaimed land in various islands.

The state-owned land designated for leasing or sale falls under three categories, he explained, which were residential, commercial, and industrial.

Moreover, 10 new islands would be leased next year for resort development, he continued, which would generate income for the government in the form of acquisition costs.

As an incentive or relief for new resorts with development stalled due to financial constraints, Jihad said the government would waive import duties for construction material or capital goods next year.

Tourism Minister Ahmed Adeeb revealed yesterday that a green tax of US$6 per night would be introduced in November 2015 and guest houses would be exempt from the tax.

Jihad said the income from the green tax would be used for water, sewerage, and coastal protection projects.

Of the proposed revenue raising measures, import duty revisions and introduction of a green tax would be subject to parliamentary approval, which the finance minister hoped would be granted as the budget was passed.

Legislative compromises to new revenue measures led Jihad to express fears in August that the predicted state deficit for 2014 would more than double in 2014.

State debt

The outstanding stock of treasury bills (T-bills) is currently MVR10 billion (US$648.5 million), said the finance minister.

In his budget speech last week, Jihad observed that the state’s debt would reach MVR31 billion (US$2 billion) or 67 percent of GDP by the end of 2014.

Expenditure on state employees in 2014 would reach MVR15.8 billion (US$1 billion), Jihad observed, while MVR3.2 billion (US$207 million) would have been spent on subsidies and social security benefits.

Consequently, the government was facing serious difficulties in “managing the state’s cash flow and financing the budget” as well as securing loans for budget support, Jihad said.

According to the central bank, the total outstanding stock of government securities was MVR13.6 billion (US$881 million) at the end of September.

Spiralling debt is threatening “the economy’s health”, Jihad said yesterday, with the rolling over T-bills proving to be difficult as the ministry has to plead with banks for extension of repayment periods.

“For example, if MVR600 million matures this week and there is MVR700 million in the public bank account, if the MVR600 million is rolled over there’ll be MVR100 million. How can we run the state with that? It can’t be done,” he explained.

The solution was raising additional revenue by utilising resources such as uninhabited islands, he continued, and appealed for cooperation from parliament. Additionally, the government was trying to extend the periods for repayment of debt.

The interest rate for T-bills is currently 7.5 percent, Jihad said, down from 10 percent before the current administration took office.

“This year we estimate that MVR1.2 billion worth of T-bills have been used by the state for finances. In 2015, it will be MVR440 million,” he noted.