The High Court today denied a request by the Maldives National Chamber of Commerce and Industry (MNCCI) to grant a temporary injunction to halt the enactment of the Goods and Services Tax (GST) Act pending a court ruling on the constitutionality of contested provisions in the legislation.
Presiding Judge Abdul Gani Mohamed noted that the MNCCI filed the case late afternoon on Thursday, September 29, and that the GST law was in effect when the court reopened after the weekend. Following a preliminary hearing, the case was registered at the High Court on October 5.
If the court were to rule against MNCCI after granting a temporary injunction, the judge continued, it would not be possible to charge GST for goods sold in the intervening period.
Moreover, as article 65 of the Act states that the Tourism Goods and Service Tax (T-GST) Act would be repealed and replaced by the GST Act, the state would have to stop collecting T-GST from the tourism industry if the High Court issued the injunction.
Judge Abdul Gani said the claimant was unable to establish that irreversible damage would be caused to businesses if the injunction was not granted.
A majority of the five-judge panel therefore decided that there were no legal grounds to issue a temporary injunction to halt the enactment of the GST Act. In addition to Judge Abdul Gani, the panel consisted of Chief Judge Ahmed Shareef, Judge Dr Ezmiralda Zahir, Judge Abdul Raoof Ibrahim and Judge Abbas Shareef.
Legal challenge
At the first hearing of the case last week, lawyer Ali Hussein representing the Chamber of Commerce argued that article 51 of the GST Act – dealing with registration at the Maldives Inland Revenue Authority (MIRA) within a one-month period from the commencement of the Act – conflicted with articles 17 (non-discrimination) and 20 (equality before the law) of the constitution.
Ali Hussein contended that setting a threshold for registration – taxable supplies of the business over the course of 12 months must exceed Rf1 million – conflicted with the constitutional provision on “equal protection and equal benefit of the law.”
As a result of the threshold, said Ali Hussein, smaller shops would not charge GST while larger stores would do so for the same items.
The MNCCI therefore requested the High Court to strike down article 51 of the GST Act on the grounds that it was unconstitutional.
Moreover, it was argued that the one-month registration period provided in article 64 was too short and inadequate for businesses to prepare.
The third and last point of contention involved regulations drafted by MIRA under the Act not exempting semi-mature coconuts from GST despite different types of coconut being exempted under the Act.
Addressing the legal points raised by the MNCCI, State Attorney Moosa Alim referred to the concept of vertical equity in tax collection, whereby taxes paid increase with income.
Alim noted that article 17(b) of the constitution states that, “Special assistance or protection to disadvantaged individuals or groups, or to groups requiring special social assistance, as provided in law shall not be deemed to be discrimination.”
The length of the period for registration or glitches in implementation were not sufficient grounds to abolish the law, he said.
On the contention that the introduction of GST on top of custom duties amounted to double taxation, the state attorney submitted a list of 112 countries that charge import duties or tariffs in addition to Value Added Taxes (VATs).
MIRA’s Director General of Tax Planning Aiman Ibrahim explained that double taxation technically referred to the imposition of two or more taxes on the same income, property or financial transaction.
Businesses that paid GST on commodities purchased from wholesale traders or importers would have that amount deducted from their tax returns, he added.
Ali Hussein however contended that both import duties and the GST would be passed down to customers, who would be paying two taxes for the same item.
Asked by the Chief Judge whether a small business not eligible for GST registration could sell a taxable item without charging the tax, Aiman Ibrahim from MIRA replied yes.
Speaking on behalf of the MNCCI, the organisation’s Treasurer Ahmed Adheeb insisted that the Maldivian economy could not be compared to large economies such as Singapore or New Zealand.
“I know of nowhere in the world where GST has been implemented within a month,” he said, arguing that the cost of implementing the tax, in terms of monitoring and auditing tax returns, was prohibitive and outweighed the benefits.
Moreover, said Adheeb, there was no audit law in the Maldives and “only three licensed auditors.”
“We foresee serious problems that will eventually reach court as a result of [GST implementation],” he said.
In response, Aiman said there was “no connection between GST and audit licensing” as businesses would not be required to file audited reports for GST returns. “[The tax return] will be a single page document and MIRA will do the auditing,” he said.
Adjourning today’s hearing, Judge Abdul Gani observed that the legal points raised by were “very technical” in nature and offered both sides an opportunity to make a presentation on the technical issues involved in the case at the next court date.
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