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.