Former Finance Minister, MACL Chairman facing corruption charges

The Anti-Corruption Commission (ACC) has asked the Prosecutor General’s (PG) office to press corruption charges against former Finance Minister Ahmed Inaz, former Maldives Airports Company Ltd (MACL) Chairman ‘Bandhu’ Ibrahim Saleem, and former members of the company’s board of directors.

The senior officials of the Maldivian Democratic Party (MDP) government are accused of incurring financial losses to the state by amending the concession agreement with Indian infrastructure giant GMR to develop and manage the Ibrahim Nasir International Airport (INIA), the ACC said in a statement today.

The agreement was changed upon request by the Finance Ministry to reduce the concession fee on jet fuel sales from 15 percent of revenue to one percent, resulting in a shortfall of MVR53.8 million (US$3.5 million).

The ACC investigation found that the finance ministry disregarded professional advice over changing the clauses.

In addition to two counts of corruption charges, the ACC also asked the PG office to seek damages from the former minister, chairman, and board members as the alteration was approved with unanimous consent of the MACL board.

Along with Inaz and Saleem, former board members Mohamed Ibrahim of H. Noomuthy, Mohamed Waheed of Ma. Fehiali, Ahmed Murad of Ma. Bluegrass, Mohamed Shaz Waleed, Mohamed Shafeeq Mahmood of G. Meadow, and Adam Rasheed Ahmed of G. Thalvaaruge are also facing prosecution.

Concession agreement

GMR, in a consortium with Malaysia Airports Holding Berhad (MAHB), narrowly won the International Finance Corporation (IFC)-managed bid for the airport in 2010, and signed a 25-year agreement with MACL under the government of former President Mohamed Nasheed.

The then-opposition, including the Progressive Party of the Maldives, Jumhooree Party, Dhivehi Rayyithunge Party and Adhaalath Party, opposed the agreement primarily on nationalistic grounds, and alleged corruption in the bidding process.

Following the controversial transfer of presidential power in February 2012, after which opposition parties assumed control of the government, the administration of President Dr Mohamed Waheed declared the concession agreement ‘void ab initio’ (invalid from the outset), and gave GMR seven days’ notice to leave the country.

Meanwhile, in December 2012, the ACC sought corruption charges against former Finance Minister Mohamed Shihab and the MACL chairman over the decision to allow GMR to deduct a US$25 Airport Development Charge (ADC), stipulated in the contract, from concession fees owed to the state.

A report by the Auditor General found that concession revenue due the government had plummeted fourfold as a result of a Civil Court ruling that blocked the developer’s charging of of the US$25 ADC, on the grounds it was a tax and therefore required parliamentary approval.

According to the report, net concession revenue to the government had fallen to just US$6,058,848 in 2012, compared to US$25,424,877 in 2011.

Rather than appeal the Civil Court verdict obstructing the ADC, “The new government took the view that it would not be proper for it to intervene in the legal process for the benefit of a private concern,” the report noted, and instead, on April 19, 2012, informed the developer it was “retracting the previous agreement [to offset the ADC] on the grounds that the then Chairman of MACL did not have the approval of the MACL board to make the agreement.”

The government received US$525,355 from the airport for the first quarter of 2012, compared to the US$8.7 million it was expecting.

In the second quarter GMR presented MACL with a bill for US$1.5 million, and in the third quarter, US$2.2 million.

The Auditor General’s report acknowledged allegations of corruption in the deal, but finding the evidence “not conclusive on this point”, deferred to the judgement of the ACC.

On June 17, 2013, the ACC released a 61-page investigative report that concluded that the bidding process was conducted fairly by the IFC, and that the GMR-MAHB consortium won the contract by proposing the highest net present value of the concession fee.

The ACC further concluded that the awarding of the contract did not contravene amendments brought to the Public Finance Act requiring parliamentary approval for such agreements.

Furthermore,  “Considering the situation (2008, 2009 and 2010) when the decision was made to privatise the Male’ International Airport,” the ACC’s calculations showed that MACL would make a profit of about US$254 million in 25 years if the airport was operated by the government-owned company.

In June 2013, GMR filed a claim for US$1.4 billion in compensation at a Singapore arbitration court for “wrongful termination” of the US$511 million concession agreement.

Upon his return from an official visit to India this month, President Abdulla Yameen said that the government was seeking an out of court settlement with GMR before the arbitration process begins.


Former finance chief questions timing of MMA private sector T-bill reform

Former Finance Minister Ahmed Inaz has questioned the timing of the Maldives Monetary Authority’s (MMA’s) decision to offer Treasury Bills (T-bills) to the wider private sector claiming it would compound the country’s budget deficit rather than directly address state debt.

Inaz, who served as Finance Minister under the administration of former President Mohamed Nasheed, said that until the present government put a lid on its expenditure to levels agreed in the national budgets of the last two or three years – extending T-bills to the wider private sector in the current climate would only prolong economic uncertainty.

The comments were made as local media reported yesterday that the Maldives Monetary Authority (MMA) had opted to allow “private groups” to purchase T-bills.

Such bills, which are sold by governments all over the world, serve as a short-term debt obligation backed by sovereign states. In the Maldives, T-bills are said to have a maximum maturity of six months, in which time they must be repaid, according to Inaz.

The economy, particularly national debt, has become an increasingly important issue for the coalition government of President Dr Mohamed Waheed Hassan.

Parliament’s Financial Committee in May released projection that the Maldives’ budget deficit will reach 27 percent of the GDP by the end of 2012, a 175 percent increase on earlier forecasts.

In recent weeks, the government has downplayed delayed payments of civil servant salaries as being the result of a banking “administrative error”, while also admitting to facing “economic difficulties” in covering months of outstanding premium payments resulting from the Aasandha universal healthcare programme.

Yesterday, Abdulla Yameen, parliamentary leader of the government-aligned Progressive Party of Maldives (PPM) told local media that the country was in “dire need” of financial assistance from the international community to help set right the economy.

Yameen and fellow PPM MP and Spokesperson Ahmed Mahlouf were not responding to calls from Minivan News today to clarify the comments.

T-bill extension

Finance Minister Abdulla Jihad said the decision to extend the availability of T-bills to private enterprise was a condition outlined by the Asia Development Bank (ADB) to secure loan funding. He was unable to give the exact amount of the loan at the time of press.

According to Jihad, T-bills had been previously only open to private financial institutions, a market place that he said was presently “saturated” in terms of demand, limiting the amount of T-bills the institutions were willing, or had the capacity, to purchase.

“The issue was to open the market to private groups,” he said.

In regards to criticism from the previous administration about state spending, the Finance Minister pointed to a recent order for all government institutions to immediately reduce their budgets by 15 percent – a pledge Jihad stressed had been successfully realised.

However, former Finance Minister Inaz said by that extending the T-bill scheme without addressing wider concerns of groups like the International Monetary Fund (IMF) over government expenditure, authorities were only prolonging current economic instability rather than tackling the present spending shortfall.

“My reaction to the MMA’s proposals is that issuing T-bills to the private sector or these private groups is not going to help the situation. The budget deficit should be reduced at all costs. Then these T-bills could be introduced as a way to meet capital expenditure,” he said.

“Expenditure should of course not be reduced to a level that would kill off independent institutions and the democratic reform of recent years. But the best way forward is to maintain expenditure say to the levels set in the 2010 or 2011 budget, while increasing income.”

While accepting that current political tensions between the government and the now opposition Maldivian Democratic Party (MDP) made it difficult reach parliamentary agreement, Inaz said that the Majlis would need to agree on any changes to the state budget.

Inaz also called on policy makers to adopt a “broader mindset” by reviewing the present government’s decision, announced earlier this year, to restore import duties and reduce GST.

He believed that taxation measures such as the GST remained the easiest solution to boosting revenue.

Inaz contended that a focus on more direct taxation would allow the government to serve as a facilitator to encourage the private sector to generate economic activity.

T-Bill reliance under Nasheed

Despite concern over the timing of the MMA’s proposals, Inaz conceded that the previous administration had itself relied on debt financed through the sale of T-bills that amounted to about Rf 1.4billion in 2011. However, he claimed that the final budget passed under the Nasheed government in December 2011 was designed to reduce the nation’s budget deficit, while also cutting down on short-term debt obligations such as T-bills.

“The T-bills issued in 2011 amounted to Rf1.4 billion (US$90.8 million). We foresaw the need growing every year, but this is very difficult to maintain as the maximum maturity for T-bills is six months, during which time they must be paid back,” he said

However, Inaz added that before the controversial transfer of power in February that brought President Waheed into office, the Nasheed government had pledged to reduce its reliance on T-bills by focusing on generating revenue through economic reforms such as GST.

“This year though we were set to reduce our reliance on T-bills to about Rf 700 million (US$45.4 million) with a view to cutting back completely through repayments in the next two years or so.”

Local media reported in April last year that government debt accrued through the sale of T-bills to banks and financial enterprises was estimated to be equivalent to more than a third of this year’s Rf 12 billion (US$778.2 million) national budget, according to Maldives Monetary Authority (MMA) figures released at the time.


Government asks Majlis to approve Rf300 million budget support loan

The government has asked the People’s Majlis to approve a budget support loan of Rf300million in place of an existing $65million (Rf1billion) loan which had been approved for the 2012 budget.

The Parliamentary Finance Committee today discussed whether the loan proposal needed to be approved by the full floor of the Majlis. The committee agreed that the matter ought to be passed on to the Counsel General.

“We cannot grant it as it was not in the state budget,” said Finance Committee member Abdul Ghafoor Moosa, who argued that the new loan would cost the government more money.

He explained that the new rufiyaa denominated loan would be obtained from the Bank of Maldives (BML), whereas the US dollar loan would have come from foreign banks.

Moosa claimed that the Rf300 million loan would be taken on a commercial basis, with high interest rates that would require the government to pay back Rf384million.

He said that the $65million loan, delayed due to incorrect paperwork, would have only been taxed at rates of around 2 percent.

Using these figures, the interest paid on the original loan would be Rf20million (US$1.3 million), whilst the interest on the new loan would be Rf84million (US$5.4million).

“Mop up” operation

President’s Office Spokesperson Abbas Adil Riza said that the figure given by Moosa was incorrect, adding that the government was “not going to lose money on the deal”.

Abbas explained that Abdullah Jihad and other members of the current Finance Ministry had advised the government to take out the new loan as part of a “mop up” operation.

“This will reduce the circular flow of rufiyaa in the economy,”  said Abbas.

He explained that new Rufiyaa denominated loan would help to ease inflation, which government figures show had risen to an annual rate of 16.53 percent in April.

Jihad was not responding to calls at the time of press.

Former Finance Minister Ahmed Inaz said that it was the central bank’s job to conduct open market operations – the buying and selling of government debt – as part of its monetary policy.  He contended that it made little sense for the government to become involved with this kind of policy.

Inaz argued that this operation would not help in mopping up liquidity – unless the government intended to do nothing with the borrowed money.

He argued that the money would be better used in the private sector, stating that the job of the government was to facilitate the running of the economy.

“If you take the fuel out of the engine, the engine will stop running,” said Inaz.

Earlier in the year, the Finance Committee estimated that the current budget deficit would reach 27 percent of GDP, or  Rf9.1 billion (US$590 million).


Former finance minister Inaz leaves MDP

Former Finance Minister Ahmed Inaz has confirmed his decision to leave the Maldivian Democratic Party (MDP).

Inaz did not give a reason for his decision, but told local newspaper Haveeru that the move “puts an end to my political career for now”.

In a response to Minivan News, he said he would “always remain independent and serving the national interest”.

Inaz was appointed after the then-opposition majority parliament unseated Finance Minister Ali Hashim in November 2010, along with six other cabinet ministers.

That vote came after three weeks of disruption in parliament, a stalemate ended only when MPs of the ruling Maldivian Democratic Party (MDP) boycotted the sitting before voting began.

Inaz’s resignation followed an incident in December 2011 in which MDP activists “dragged” him from a car in which he had been spotted hold holding a covert meeting with former president Gayoom’s half brother, MP Abdulla Yameen.

MDP activist Ibrahim ‘Dhonbeli’ Haleem told Minivan News afterwards that he had observed Inaz and Yameen holding a discussion “for two hours” near Male’s South Harbor, “a dark area poorly lit that is only really frequented by boys and girls, not for official business.”

“I told Inaz it was wrong, that Yameen is an enemy and why is he going to this area to hold a business meeting. If he needs to discuss business he should do it in his office.

“Inaz admitted it was wrong, and the MDP activists were yelling and shouting so I took him on my bike to Haruge (MDP headquarters),” claimed Dhonbeli.

Inaz would not confirm that this was the reason for his resignation at the time.

Tax advocate

Inaz’s term as finance minister was characterised by swiftly-enacted tax reforms, passed amid juggling many conflicting political interests and a campaign to sell the concept to the public.

Inaz noticeably took the time to meet with businessmen, parliament and opposition party delegations to explain the reasons and rationales for the various reforms he was implementing.

“All the businessmen I have met – all the reasonable businessmen I have met – believe that the country has to move to a much more structured, predictable and more coherent system of governance. And to do that we need an economic system that supports social change, and supports the change we have brought politically,” he told Minivan News, in an interview in May 2011, shortly after becoming minister.

“To sustain their businesses it is important that they have social and political stability. It would be a grave mistake if one stands up and says they don’t support [income tax], because that will bring instability to the country and harm businesses,” he said.

Under Inaz, the Maldives implemented a tourism goods and services tax (TGST), general GST and business profit tax, and was working towards an income tax for those earning over Rf 30,000 (US$2000) a month. Nasheed’s government maintained that combined, these elements would give a full picture of the money and assets in the country, and avoid the hiding of company tax revenue with individuals.

New Economic Minister Ahmed Mohamed announced at a press conference yesterday that policy of income tax would temporarily be halted, according a report in Haveeru.

Under Inaz, the Maldives Inland Revenue Authority (MIRA) also took over most of the Maldives’ government’s cash handling, greatly reducing petty counter-level corruption across the public sector and giving a single picture of government income.

Inaz also pushed – against subtle but solid opposition – for the rufiya to be used as legal tender for all transactions in the Maldives, aside from tax collection.

Most resorts continue to charge tourists in dollars, a practice which is contrary to monetary policy and technically illegal, but ignored by the Maldives Monetary Authority (MMA). Those dollars swiftly leave the country for more financially-stable shores, instead of generating a demand for the local currency at the point of sale. The country consequently has a dollar shortage, banks have little money to loan, and the average population benefits little from the tourism industry beyond employment – for which they are paid in rufiya.

“What other country has prices in another country’s currency?” Inaz asked Minivan News, in May 2011.

A key moment under Inaz’s term as finance minister came with the discovery that based on income from the TSGT, the tourism economy was 300-400 percent previous estimates.

“Previously we had thought tourism receipts for the country were around US$700 million. But since collection of the 3.5 percent Tourism GST it has come to light that the figure is around US$2.5-3 billion,” then President Nasheed said during a press conference in June 2011.


MDP activists confront Finance Minister after covert harbor meeting

Ruling Maldivian Democratic Party (MDP) activists demanded Finance Minister Ahmed Inaz’s resignation last night after he was found holding a covert meeting with Mulaku MP Abdulla Yamin of opposition Progressive Party of Maldives (PPM).

The Minister, who has not resigned from his post, and MP Yamin had not responded to inquiries at time of press.

Minivan staff who witnessed the event said one activist lay down in front of Yamin’s car while another “dragged” Inaz from the vehicle and took him to MDP headquarters at Haruge.

Activists interviewed today claimed that Inaz was not forcefully taken from the vehicle.

Activists alleged that the two politicians had held a secret meeting, possibly involving a bribe. Inside Haruge, Inaz was pressured to send an SMS message to President Mohamed Nasheed, currently in Sri Lanka, conveying his resignation.

Inaz left Haruge after police arrived to address the agitated crowds.

Police received information of the disturbance after midnight, but finding no signs of violence upon arrival did not take action.

Police Sub-Inspector Ahmed Shiyam reported that no case had been filed from either side of the dispute.

“Even today, we have received no complaint from Inaz or from the MDP and have found no reason to investigate the matter,” he said.

MDP senior activist Ibrahim ‘Dhonbeli’ Haleem said he discovered Inaz and Yamin holding a discussion “for two hours” near Male’s South Harbor, “a dark area poorly lit that is only really frequented by boys and girls, not for official business.”

“I told Inaz it was wrong, that Yamin is an enemy and why is he going to this area to hold a business meeting. If he needs to discuss business he should do it in his office.

“Inaz admitted it was wrong, and the MDP activists were yelling and shouting so I took him on my bike to Haruge (MDP headquarters),” said Dhonbeli.

He said Inaz appeared scared, and following his appearance at Haruge Dhonbeli “took him safely home.”

Dhonbeli believed Yamin was attempting to bribe the Finance Minister on behalf of the “money holder” opposition party.

Yamin is the half-brother of former President Maumoon Abdul Gayoom. He had not responded to phone calls at time of press.

Male’ City Councilor Lufshan Shakeed said he was among those who stood in front of Yamin’s car when he attempted to drive away. He explained that MDP activists were “ok if they meet in a cafe or on the roadside, but we don’t like these hidden discussions.”

Asked whether he expected the Minister would resign following last night’s encounter, Shakeed said “it’s up to him. The MDP activists and grassroots people are not very happy right now.”

PPM officials had not responded to phone calls at time of press.


India issues first installment of US$100 million loan to Maldives

The Indian government today handed a US$30 million (Rf462.6 million) loan to the Maldives Finance Minister Ahmed Inaz to settle Treasury Bills (T-Bill) sold to various parties.

The loan was presented by Indian High Commissioner to the Maldives DM Muley, in the form of a State Bank of India (SBI) cheque.

At the ceremony, Inaz noted that the loan was part of a US$100 million (Rf1.5 billion) loan that is being provided by the Indian government. The remaining US$70 million (Rf1 billion) will be provided in the near future, he said.

Altogether, the loan is expected to settle the T-Bills. Earlier this year, Parliament authorized the state to seek a maximum of Rf1.3 billion (US$8 million) from T-Bill sales.

To date, the government has allegedly acquired over Rf700 million from T-Bill sales this year. The government sold Rf750 million (US$45 million) in T-Bills today alone.


DRP to submit no-confidence motion against Finance Minister Inaz

Main opposition Dhivehi Rayyithunge Party (DRP) has decided to submit a no-confidence motion against Finance Minister Ahmed Inaz.

Speaking to Minivan News today, MP Dr Abdulla Mausoom,  deputy leader of the DRP parliamentary group, argued that the Finance Minister had been irresponsible in fulfilling his duties and constitutional mandate.

“Given that local governance is vital in democracy, the Finance Minister has not been issuing budget for the councils in a timely manner and the councils have had their work stalled because of that,” said Dr Mausoom, outlining the grounds for the no-confidence motion. “Secondly, while the media plays a vital role in democracy and while we are all in need of a state broadcaster, the Finance Minister has not issued the budget for the Maldives Broadcasting Corporation (MBC).”

Moreover, Mausoom continued, Finance Minister Inaz supported the current system of taxation and devaluing Maldivian currency.

“The fisheries subsidies have been withheld as well,” he added.

The DRP will be seeking support from other opposition parties to vote in favour of the motion, he said.

At a press conference held today to announce the decision, Mausoom contended that Inaz’s decision to allegedly withhold funds for certain budget items constituted “actions that are contrary to democracy.”

Finance Minister Inaz however told Minivan News today that the fuel subsidy for fishermen was added to the budget by parliament.

In December 2009, parliament added Rf800 million (US$62 million) to the 2010 state budget prepared by the government, including media subsidies, fuel subsidies for fishermen and the reversal of pay cuts of up to 15 percent for civil servants.

The additions were made at a time when the country was facing a crippling budget deficit and pressure from international financial institutions to reign in government spending.

“The parliament recommended the fisheries subsidy and the ministry was told to deduct the amount required for it from money allocated for other subsidies and did not tell from which subsidies we should take the money for fisheries subsidies,” Inaz explained. “All other subsidized services are also essential services, such as subsidies for student text books, it will end up in the same way if money was deducted from any of the services.”

Inaz observed that diesel was currently subsidised while the government has reduced 50 percent from the price of diesel, which he said was a subsidy mainly targeted for fisherman.

“And the MBC issue is currently in court and I do not have anything to do with matters ongoing at court,” he said.

On the new taxes, Inaz noted that all tax legislation must be approved by parliament and not levied unilaterally by the government.

Inaz insisted that he never claimed that the dollar shortage would be alleviated three months after the decision to float the exchange rate.

“The media has been spinning what I said,” he suggested. “What I said was that within three months we will see the real exchange rate for dollar within the band [of the managed float]. The ministry has no mandate to determine monetary policy, it is within the mandates of Maldives Monetary Authority (MMA). We only try to balance the expenditure and revenue.”

Inaz noted that the current administration had reduced an inherited fiscal deficit of 33 percent to a forecast of 12 percent this year.

“I have always worked for the benefit of the people as that is what I swore an oath to do and I will not change anything in light of this decision made by [the DRP] to forward a no-confidence motion,” he said.


MJA calls for investigation into release of Rf456,000 to defunct media association

The Maldives Journalists Association (MJA) and senior members of the now-defunct Maldives Media Association (MMA) have called on the Auditor General and Anti-Corruption Commission (ACC) to investigate an alleged Rf456,000 (US$31,000) released from the states contingency budget.

The MMA – not to be confused with the Maldives Media Council (MMC) which is currently facing legal action for paying members almost Rf 1 million in ‘living allowances’ -was registered as an NGO in 2007 and was active for a year. However the NGO ceased its activities and many of its board members resigned.

Deputy Speaker of Parliament and Chair of the Public Accounts Committee, MP Ahmed Nazim, told local media this week that a report submitted by the Finance Ministry showed that over Rf450,000 from the state budget was issued to the MMA.

“According to the NGOs Act, the Maldives Media Association was supposed to be dissolved for being inactive for a long time, but the Home Ministry has not yet announced it has been removed from the NGOs list,” the MJA said in a press release. “It is astonishing to hear that such a large sum of money has been given to the MMA from the state budget to pay their staff.”

The MJA said it understood that information on assistance given to the MMA was stored at the Information Department, and called for an investigation.

State Tourism Minister Mohamed Thoyyib was the last President of the NGO, and other figures such as Mohamed ‘Hiriga’ Zahir, who is the current editor of Sun Online and Maldives Media Council member, along with Maldives National Broadcasting Corporation (MNBC) Sub-Editor Ahmed Muhsin, were all senior members of the MMA.

Finance Minister Ahmed Inaz told Minivan News that he was not sure how the allegations surfaced.

“We are currently trying to determine whether it actually happened,” Inaz said, adding that the ministry would put out a press statement explaining the incident.

Hirigia, who was a senior member of the MMA, told Minivan News that the NGO had received no money from the government when it was active.

“We call on the Auditor General and Anti-Corruption Commission (ACC) to investigate this matter and we call on the government to tell everyone where the money really went,” Hiriga said. “It’s been almost 24 hours since the Public Accounts Committee told the media about this, and still the Finance Ministry has not said anything about it.”

The emergence of the issue indicated that the government may have been misusing funds out of the contingency budget, he said.

“There will be still more than Rf60,000 of the Maldives Media Association’s money stored in the Information Department, we want to know what happened to that as well,” Hiriga said.

The then-President of the Maldives Media Association, currently State Minister for Arts and Culture Thoyyib Mohamed, said that the association received no money from the government.

”We did not receive any money from the government, maybe there is confusion in the Finance Ministry,” Thoyyib said.


“Democratisation has its costs”: Maldives comes to terms with tax reform

The Maldives is coming to terms with a reformed tax system, following the introduction of a General Goods and Services tax this week.

Finance Minister Ahmed Inaz said the new system, which has raised the eyebrows of businesses, consumers and politicians alike, is a natural consequence of recent political changes and requires everyone’s support to function sufficiently.

“I think anybody could see that after the 2005 democratic reform, costs increased. These costs had to be met by additional revenue, but they weren’t,” he said.

Currently, the Maldives’ has a state deficit of Rf1.3 billion (US$85 million). Since democratisation, the Maldivian government has surpassed other national governments’ employment rates by employing 10 percent of the national work force. One third of government spending goes to state employees, and nearly half of the 2011 budget was spent on salaries and allowances.

The Goods and Services Tax (GST), which became operative on October 2, has raised a 3.5 percent tax on certain items. Contrary to an earlier tax which was paid for at the point of import and effectively invisible to the customer, the GST requires most businesses to charge an additional 3.5 percent directly to the customer at point of sale.

Certain items are tax exempt, a detail which has allegedly made it difficult to implement at stores selling a variety of products.

Inaz is optimistic that new tax reform system will cut costs and improve business operations. He said many businesses are compliant with the new measures, and are trying “their level best to be sure that this happens.”

“Business owners will have to crunch the numbers, and that will show them more about what is happening in their businesses. They will be able to better see how things operate.”

The GST is part of a larger tax reform system described in “a package of policy reforms that will help stabilise and strengthen the Maldives’ economy” agreed to by the Maldives and the International Monetary Fund (IMF) in May.

The policy reforms include raising the Tourism Goods and Services Tax (TGST) from 3.5 percent to 6 percent from January 2012, and to 10 percent in January 2013. Tourism is one of the Maldives’ leading economic contributors.

Inaz stressed that the tax was a step towards self-sufficiency for the Maldives.

“The international community will not give us the money required to balance our deficit, it is us who have to raise that money and that’s everyone’s responsibility. We have to make sure we can stand on our own feet.”

Meanwhile, opposition party Dhivehi Rayyithunge (DRP) has expressed concern over the tax. After supporting its initial pass through Parliament, DRP released a booklet titled “DRP’s response to the government’s economic nuisance package.” The booklet said businesses were not sufficiently prepared for the transition, and requested a six month delay.

Noting “administrative confusion” and the country’s heavy reliance on imports, the DRP also suggested levying a customs duty at the entry point to the country as a more effective means of raising revenue.

“We believe the GST is a regressive expense. The government doesn’t have the infrastructure to support it, implementation of GST means it will have hire a lot of people.”

DRP Spokesperson Ibrahim ‘Mavota’ Shareef said today that the tax system had not been implemented prematurely, but that it would only benefit large businesses while harming smaller ones.

“The government is doing the opposite of what it preaches,” he said. “Our main problem with the bill is that the government has decreased the tax burden on the very rich, especially in the tourism sector. We want to see the current tax system overhauled and replaced with a modern one.”

Shareef said DRP supports other progressive taxes, and was in favor of the recently announced plan to decrease import duties starting in January 2012.

President Mohamed Nasheed yesterday said a policy to reduce import duties would bring prices down starting early next year.

The President’s Office Press Secretary Mohamed Zuhair told Minivan News that the waiving of certain import duties would be significant.

“Once the new tax system is fully operating, all will fall into place. Prices will drop to even lower than originally,” Zuhair said.

A bill to finalise the tax system is currently before the Majlis, and is expected to take another two or three months to be properly processed.

During the President’s tour of retail, grocery, and supermarket stores on October 3, Zuhair said that operations were “running smoothly”.

“The only issue was that many businesses had a shortage of coins. Maldivians have a habit of rounding up to avoid coin transfers, but in a successful economy coins are important. Maldives Inland Revenue Authority (MIRA) has been doing a commendatory job in distributing coins, and the Maldives Monetary Authority (MMA) foresaw the issue and has a distribution system in place,” he said.

When asked about the DRP’s opposition to the GST, Zuhair alleged that the party’s motives were political.

“They made their case to the President, but the President was advised by his advisors and economic experts that a taxation system needed to be implemented,” said Zuhair.

“It is true that the very rich have not been taxed appropriately as per their earnings,” he acknowledged. “Once the tax system is fully in place, things should stabilise.”

Shareef did not accept that there were political motivations behind the DRP’s objections. “It’s an economic and social issue, concerning the distribution of wealth,” he said.

Inaz did not wish to comment on the matter. “This is an economic issue,” he said.

State Minister for Finance Ahmed Assad previously observed that even with the new taxes proposed by the government, the Maldives still had the most generous tax system in the region – even compared with other island nations, and neighbouring countries such as India and Sri Lanka.