Maldives’ resorts among world’s best, but industry insiders express concern over Green Tax

Three Maldivian resorts have been named among the world’s top 25 hotels by TripAdvisor, but industry specialists have expressed concern over the new green tax and rising prices.

Gili Lankanfushi Maldives placed top in the recently announced Traveler’s Choice Awards, based upon the quantity and quality of reviews posted on the website, while two other Maldivian resorts – Cocoa Island and Constance Moofushi – ranked at number six and fifteen, respectively.

The survey by the world’s largest travel website acknowledged over 8,100 properties based on one year’s worth of reviews and opinions from its 315 million unique monthly visitors.

“We are very glad that three of our resorts got included as top hotels in the world,” said Maldives Association of Tourism Industry Secretary General Ahmed Nazeer.

Four other Maldivian locations were named as part of the top 25 hotels in the Asian region. Baros Maldives was awarded ninth place on the regional list, Soneva Fushi placed 13th, while LUX* Maldives and Komandhoo Maldives Resort earned 21st and 22nd, respectively.

Meanwhile, industry specialists have expressed concern that the Maldives might soon become an overpriced destination due to increasing taxes and service charges, with the latest levy taking the form of a US$6 green tax.

“The green tax will definitely have an impact,” said Shafraz Fazley, Managing Director of Viluxur Holidays to “It is (already) becoming too expensive to go to top resorts because of all the service charges and taxes.”

The US$6 green tax was announced in November last year with the tourism minister Ahmed Adeeb saying that the revenue generated from the tax will go into managing waste from local resorts and other islands.

Rising arrivals, rising costs

The tax is part of  new revenue raising measures outlined in the record MVR24.3 billion (US$1.5 billion) state budget for 2015, which also includes the addition of ten resorts to the current 109 registered facilities. These measures are anticipated to raise MVR3.4 billion (US$220 million) in revenue for the government.

The green tax will be introduced 11 months after the abolition of the US$8 per night bed tax, and one year after the hike in the Tourism Goods and Service Tax (T-GST) from 8 to 12 percent. Airport service tax was also raised from US$18 to US$25 in July 2014 for visitors leaving the country.

Maldives Association for Travel Agents and Tour Operators President Abdulla Ghiyas was reported as having told TTG that the resort contracts will be unaffected as the bed tax had been taken into account, though the opposition has previously called the levying of this and T-GST simultaneously as “double taxation” on the industry.

“Have a look at the TripAdvisor Forum,” Michelle Flake from Koamas Luxury Escapes told TTG. “I am sure people are moaning and saying it will be too expensive for them to come soon.”

After receiving more than one million tourists for the second consecutive year in 2014, the tourism ministry estimates that the Maldives will see 1.4 million tourist arrivals this year.

Speaking to Minivan News about the past year, however, Tourism Employee’s Association of Maldives Secretary General Mauroof Zakir said that, despite the increased arrivals, the tourism industry suffered as a whole in 2014.

“Total tourist arrivals have increased compared to the previous year. However, as arrivals from Europe and Russia decrease, less income is generated as the replacing Chinese visitors spend less and stay for lesser periods,” said Zakir.

Last year’s Maldives visitor survey in January 2014 appeared to confirm Zakir’s point, showing that Asian tourists stayed for shorter periods of 3 to 4 days while the average stay for European tourists was between 7 and 11 days.

According to the Tourism Yearbook 2014 – published by the tourism ministry – average duration of stay by tourists is declining, from 8.6 days in 2009 to 6.3 days in 2013.

The Chinese and Russian tourist markets are two of the fastest growing in the world, with arrivals increasing by an average of 54 and 10.7 percent, respectively, between 2009 and 2013.

Adeeb has acknowledged the negative impact of the falling Russian rouble on arrivals, saying that the Maldives must diversify its tourism markets as the international arena “heats up”.

Related to this story

1.4 million figure for 2014 tourist arrivals incorrect, says Tourism Minister

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Government decides to implement a ‘green tax’ on tourists


MIRA quarterly revenues shows 10.5 percent increase compared with previous year

The Maldives Inland Revenue Authority (MIRA) has released it’s first quarterly report of 2014, revealing that a total revenue of MVR2.78 billion was collected – an increase of 10.5 percent on the corresponding period in 2013.

91.5 percent of revenue was collected from five sources: Goods and Services Tax (GST) – 12.7 percent, Tourism Goods and Services Tax (T-GST) – 31.9 percent, Business Profit Tax – 27.9 percent, Tourism Land Rent – 9.3 percent, Tourism Tax (bed tax) – 5.3 percent, and Airport Service Charge – 4.4 percent.

MIRA noted that increased collection of fines for nonpayment as well as a “significant” rise in Land Sales Tax collected (0.3 percent).

59 percent of the total revenue was collected in US dollars – 29.5% more than the share of the previous quarter’s collection, and 7.7% more than the first quarter of 2013. The rise was driven largely by increased revenue from GST, Airport Service Charge, and Business Profit Tax – which grew by 24.7 , 45.1, and 16.4 percent respectively compared with twelve months ago.

MIRA’ s revenue streams are set to further increase from next month as telecommunications services will be subject to GST for the first time. T-GST is also scheduled to increase from the current rate of 8 to 12 percent in November, although the bed tax will be withdrawn in the same month.

The current government is considering a number of revenue-raising measures in order to address the MVR3.4 billion (US$224 million) shortfall in this year’s record MVR17.95 billion budge.


Parliament approves government’s revenue raising measures

Parliament today passed three bills submitted by the government to raise additional revenue anticipated in the 2014 state budget.

The revenue raising measures approved today include hiking the Tourism Goods and Services Tax (T-GST) from eight to 12 percent in November, reintroducing the discontinued US$8 bed tax starting this month, and requiring resort lease extension payments to be made within two years.

While the two amendments to the Tourism Act were voted through 38-18, the amendment to the Goods and Services Tax Act was approved 39-18. The changes will take effect once signed into law by the president.

The passage of the amendment bills was greeted with applause from government-aligned MPs.

MPs of the opposition Maldivian Democratic Party (MDP) voted against all three pieces of government-sponsored legislation, contending that the tax hikes would adversely affect the tourism industry.

“Numbers will not match”

The government had initially proposed collecting resort lease extension fees within three months, collecting bed tax throughout this year, and raising T-GST in July.

However, the parliamentary subcommittee that reviewed the legislation consulted the Maldives Association of Tourism Industry (MATI) last week and recommended revising the government’s proposals.

Representatives from MATI opposed continuation of the bed tax alongside the T-GST increase.

Appearing before the subcommittee, MATI Secretary General Ahmed Nazeer also questioned the practicality of collecting resort lease extension fees upfront.

Only 17 out of more than 100 resorts offered the opportunity by the administration of former President Mohamed Nasheed to extend leases with a lump sum payment were able to do so, Nazeer said.

Resort owners had amended their lease agreements to pay extension fees in installments during Dr Mohamed Waheed Hassan’s administration, Nazeer noted, and revising agreements for a third time could present legal challenges.

Government-aligned Jumhooree Party Leader Gasim Ibrahim – who chaired the subcommittee – meanwhile told local media following the revisions that the bed tax and T-GST hike would overlap in November, after which the former would be discontinued.

The decision was made to compensate for the loss of income from the bed tax in January, the business magnate and resort owner explained.

Finance Minister Abdulla Jihad told local media last month that the Majlis’s failure to extend the bed tax would result in a revenue shortfall of MVR100 million (US$6 million) a month.

Moreover, in the wake of the subcommittee’s revisions, Jihad warned that the projected MVR 3.4 billion (US$224 million) in additional revenue – which accounts for 18 percent of the record MVR17.95 billion budget passed for this year – could not be realised in full due to the changes.

Following remarks by Progressive Party of Maldives MP Moosa Zameer at the subcommittee last week – suggesting that pro-government MPs supported abolishing the bed tax in favour of increasing T-GST – Jihad told Minivan News that the government’s stance had not changed.

“It has not changed. And if the government does not go on with the bed tax, the numbers will not match in the budget,” he said.

Meanwhile, parliament yesterday accepted for review amendments submitted by the government to revise import duties.

In addition to raising tourism taxes and custom duties, other revenue raising measures proposed by the government include raising airport departure charge for foreign passengers from US$18 to US$25, leasing 12 islands for resort development, and introducing GST for telecommunication services.


MDP against “double taxation” of tourism industry

The opposition Maldivian Democratic Party (MDP) is against the government’s plans to reintroduce the tourism bed tax and hike the Tourism Goods and Services Tax (T-GST) from eight to 12 percent, parliamentary group leader Ibrahim Mohamed Solih has said.

“We won’t agree to double taxation in tourism industry,” he was quoted as saying by newspaper Haveeru.

Solih told local media that the MDP was also against raising import duties. A parliamentary group meeting will be held to decide the party’s stance on the government’s bills, he said.

An extraordinary sitting of parliament has meanwhile been scheduled for tomorrow – during the ongoing two-month recess – to debate government-sponsored legislation to raise the T-GST and amend the Tourism Act.

Amendments to the tourism law are intended to revive the discontinued flat US$8 bed tax and require resort lease extensions to be paid as a lump sum.

Following the Majlis’s failure to extend the tourism bed tax before the end of last year, Finance Minister Abdulla Jihad told local media that the resulting losses to state revenue would be MVR100 million a month.

Among other revenue raising measures proposed by the government include revising import duties, raising airport departure charge for foreign passengers from US$18 to US$25, leasing 12 islands for resort development, and introducing GST for telecommunication services.

In December, parliament passed a record MVR17.5 billion (US$1.16 billion) budget for 2014, prompting President Abdulla Yameen to call on the legislature to approve the revenue raising measures, which the government contends are necessary to finance development projects.


Majlis will reconvene to discuss revenue raising measures

The People’s Majlis has agreed to return from recess on Tuesday (January 14) in order to discuss urgent amendments to tax and tourism legislation that will enable the government to raise vital revenue.

Local media has reported that the session will begin at 9am.

President Abdulla Yameen last week called upon the legislature to reassemble in order to facilitate the record MVR17.95 billion budget passed last month – of which MVR3 billion is reliant on new revenue raising measures.

“God willing, when the revenue related bills are passed next week the projects in atolls will speed up”, he said.

The measures include hiking Tourism GST from 8 percent to 12 percent, revising import duties, continuing tourism bed tax for one more year, raising airport departure charge for foreign passengers from US$18 to US$25, leasing 12 islands for resort development, introducing GST for telecommunication services, and obtaining resort lease payments as a lump sum.

Following the Majlis’s failure to extend tourism bed tax before the start of the current recess, Finance Minister Abdulla Jihad told local media that the resulting losses to state revenue would be MVR100 million a month.


MP Riyaz Rasheed withdraws amendments to keep tourism bed tax in place past 2013

MP Riyaz Rasheed of the Dhivehi Qaumee Party (DQP) has withdrawn a government-sponsored amendment to the Tourism Act to keep a US$8 bed tax in place beyond 2013, citing lack of support from parties in the ruling coalition.

The flat rate of US$8 per occupied room, per night, was to be abolished at the end of this year to be offset by sales and land taxes.

The MP for Thaa Vilifushi announced that he was pulling out the legislation after the preliminary debate started at today’s sitting of parliament.

Riyaz expressed concern with the lack of support from coalition partners for revenue raising measures proposed by the government.

Riyaz, who had submitted the bill on behalf of the government, called on President Dr Mohamed Waheed’s administration to consult with pro-government parties represented in parliament before proposing further legislation.

During today’s brief debate on the proposed amendment, most MPs argued that the tourism industry would be adversely affected if the bed tax was not discontinued as planned with the introduction of Tourism Goods and Services Tax (T-GST).

Riyaz’s decision to withdraw the bed tax amendment follows parliament’s rejection last week of government-sponsored legislation to raise the airport service charge to US$30, which was among a raft of measures proposed by the Finance Ministry in the estimated 2013 budget to raise MVR 1.8 billion (US$116 million) in new income.

MPs voted 28-27 against proceeding with the bill at committee stage following preliminary debate.

During the debate last week, MPs of both the opposition Maldivian Democratic Party (MDP) and government-aligned Progressive Party of Maldives (PPM) – respectively majority and minority parties in parliament –  accused President Dr Mohamed Waheed of using state funds to finance his presidential campaign.

Parliament’s rejection of the government-sponsored bill prompted the Finance Ministry to suspend new development projects financed out of the state budget due to shortfalls in revenue.

Finance Minister Abdulla Jihad said that the cabinet decided to postpone planned infrastructure projects that have not yet started in an attempt to ease cash flows.

Speaking to press yesterday (April 21) following the signing of contracts for construction of harbours in four islands, Housing Minister Dr Mohamed Muiz said he was instructed by the finance ministry not to commence any further infrastructure projects included in the 2013 budget.

“As you know, the government’s budget is in a very fragile state. We can only spend what is earned as income. The government proposed new revenue measures when it submitted the budget. It was approved on principle when the budget was passed,” Muiz said.

“However according to my information, difficulties have arisen in implementation [of the measures]. As a consequence, aside from these four islands, the finance ministry has instructed me not to sign or commence with any infrastructure project in any island from now on. Unless the People’s Majlis passes new means of earning income for the government, the finance ministry has instructed us not to begin any project financed out of the government budget, be it harbour construction or land reclamation or any project undertaken by the housing ministry.”

Housing Minister Muiz – a senior member of the government-aligned religious conservative Adhaalath Party – called on all state institutions to cooperate and work together to “improve the country’s economic condition.”

Other revenue raising measures proposed with the 2013 budget included hiking Tourism Goods and Services Tax (T-GST) to 15 percent from July 2013 onward, leasing 14 islands for resort development, introducing GST for telecom services, raising oil tariffs, and “selectively” reversing import duty reductions.

Finance Minister Jihad confirmed to Minivan News yesterday that the government was in the process of formulating a supplementary budget by the end of April.

Economic Development Minister Ahmed Mohamed – a senior member of the government-aligned Dhivehi Rayyithunge Party (DRP) – however told newspaper Haveeru last week that a supplementary budget would be of no use if parliament failed to approve the proposed revenue raising measures.

“Numbers written on paper will not increase funds. One or two billion rufiya can be added to the budget through the supplementary budget,” he explained. ”But shouldn’t there be a way to get that three or four billion rufiya?”

During the budget debate in December 2012, Majority Leader MP Ibrahim Mohamed Solih warned that the additional revenue projected in the budget was unlikely to materialise.

The MDP parliamentary group leader claimed that the import duty revision to raise tariffs on oil “will not be passed in this Majlis.”

Moreover, he said at the time, the MDP would not support increasing T-GST without consultation with the tourism industry.

Predicting that revenue in 2013 would reach “only MVR 11 billion at most,” Solih had warned that income would not be enough to meet recurrent expenditures on salaries and administrative costs.


Former President criticises government’s fiscal policy

Former President Mohamed Nasheed has predicted that the people he believes to have been behind his removal from office will soon reduce the Goods and Services Tax (GST) by one third.

Speaking on his tour of Kaafu Kaashidhoo, Nasheed said that the small number of businessmen accused of being behind last month’s coup d’état would resist sharing even a minor portion of their wealth with the people.

He criticised the government for allowing resort owners to pay bed taxes in instalments, contrary to his own administration’s lump sum policy which, he argued, helped fund public services.

Nasheed’s tour also took in Kaafu Gaafaru before his return to Male’ yesterday.


Government’s bill reduces tourism revenue “but improves investor confidence”

The government has proposed an amendment to the Tourism Act that reduces the rent resorts pay as well as extending the lease period to fifty years, a move which would significantly reduce the government’s income from the tourism industry in the short term.

The bill was proposed by MDP MP Ibrahim Mohamed Solih, who said the main aim of the bill “is to improve investor confidence and performance of the tourism sector.”

Solih said rent would be charged depending on the resort’s area and not number of beds. Resorts are now to pay US$7 for each square metre.

Resorts would also be categorised according to their size; the smallest group being from 100,000-200,000 m²; the second from 200.000-400,000 m², and the largest is above 400,000 m².

Solih said this will ease the burden on resort owners and will help resorts currently under construction around the country.

He noted that this would reduce the government’s income from the tourism sector from Rf 1900 million (US$148 million) to about Rf 1300 million (US$101 million).

Creating an investor-friendly environment

Minister of Tourism, Arts and Culture, Dr Ali Sawad, said the amendments to the Tourism Act will create more macro-economic opportunities in the Maldives.

“It is geared towards achieving three objectives: the first is transforming leases to land rent. The second is phasing out the bed tax, and the third is increasing the lease from a minimum of 35 years to a minimum of 50 years.”

Resorts currently pay a flat rate of US$8 per occupied room, per night, known as the ‘bed tax’, however the resort industry has criticised this as a disincentive to increase capacity and promote expansion, and limited potential revenues in the future.

Dr Sawad said since all the revenue streams are linked, any amendments to the bill will have a “ripple effect on the economy” and would create an environment for greater investments as investment costs are decreased.

He assured that the amendments would bring in more revenue starting from next year, but admitted the government would see “a slight drop [of revenue] during the transition. It’s all part of a larger fiscal policy.”

The amendments to the bill would ultimately “not lower revenue” from the tourism industry, as they were intended to make investment in the Maldives “more attractive.”

Former Minister of Tourism Abdulla Mausoom said “we definitely have to create a positive investment environment in the country,” because in the last year and a half, “investor confidence has been down.”

He said the outcome of both the tourism bill and the taxation bill “are not certain.”

“The Maldives is very small and our natural resources are limited,” Mausoon said. “The government has a responsibility to look after our resources.”

He said he believed “it is not in the best interest of the country” when an investor is willing to pay a better price and the government had set a lower fixed price.

“We should facilitate and investor-friendly environment without eliminating the competitiveness of the market,” he said.

Mausoon suggested the government set a minimum fixed rate and have bidders propose higher bids from there. He said most of islands desired by resorts were what he termed, “micro-islands” or those less than 10 hectares in size (less than 0.1 km²).

“The government has a responsibility to safeguard our assets,” Mausoon said, noting that if investors are willing to pay more, “they should be allowed to pay more.”

‘Sim’ Mohamed Ibrahim from the Maldives Association of Tourism Industry (MATI) said “we think this a very forward-thinking bill. Obviously there are little tweaks needed, but overall it’s a good bill that has come at the right time.”

Sim said “the government has worked closely with the tourism industry to develop this bill” and had consulted with the industry “at every stage.”

Bed tax and island lease vs. GST and land rent

Currently, the cost a resort pays the government is based on the number of beds it has. Dr Sawad said on average, the government was making anywhere from US$3,500-20,000 per bed every year, generating a total of US$47 million in revenue from the bed tax per year.

He said a “conservative estimate” of how much revenue the government’s proposed Goods and Services Tax (GST) is expected to bring in was over US$60 million a year. He noted that the tax revenue would continue to increase as the tax net widens.

Dr Sawad said the bed tax would be phased out in the next three years when the GST is in place.

He also said the leases for resorts currently brought in around US$78 million, while the land rent should collect about US$60 million a year.

“By addressing the lease rent head on, we will be able to reduce investment costs, which makes for a more attractive investment,” he said.

However Mausoom said the land rent increases the uncertainty for the tourism industry, because there is no guarantee as to how many beds will be developed on then land: “A resort owner can build as many rooms as possible.”

“This US$7 per square metre is very misleading,” he added, noting that “the government will only be getting three set rents: US$1 million [per month] for the islands in the smallest bracket. For the middle bracket it will be US$1.5 million, and US$2 million for the larger islands. It doesn’t make sense.”

He pointed out the smallest bracket—those islands smaller than 200,000 m²—“should catch at least US$1.4 million, if you multiply it by US$7 per square metre. It’s totally misleading.”

Another thing he believes is unfair is the government’s decision to wait until the GST is in place before ratifying the Tourism Act. “They can’t put a condition like that,” he said, “it’s putting an extra burden on resort owners.”

Mausoom also said he believed there were “many discrepancies” in how the MDP is trying to consolidate the different bills and acts concerning fiscal policy, and said “the government has to start singing the same song. A song that is nice to the Maldivian people, nice to the investors, and nice to the tourists.

Sim explained that the amount the government will lose in land rent (compared to the current lease and bed tax scheme) would be offset by the GST levy, “which would go hand-in-hand with this bill.”

He said adding the business profit tax, GST and land rent, the resorts will “probably pay more than they do currently alongside existing government revenues from customs duties.”

He added that the three year waiting period to phase out the bed tax “is a bit long and [we] will try to lobby for one year.”

Sim also noted that the major issue with the Maldives’ tourism industry is capacity: “The industry can only grow through an increase in capacity. The current situation is good for people who have established, successful properties, [but not for new investors].”

The new system, he said, would offer businesses “certainties” and reduce the current level of “maneuvering” occurring within the industry.