Tag: economic reform

Opposition MPs object to provision for foreign judges on proposed mercantile court

Opposition MPs today strongly objected to a provision for foreign judges in a bill proposed by the government to establish a mercantile court with special jurisdiction to resolve disputes involving business transactions in the Maldives.

Under the proposed legislation, an experienced Muslim foreigner may be appointed among the seven-judge bench for the court, which will have jurisdiction to handle cases relating to transactions concerning tourism, construction, international business, insurance, civil aviation, maritime, shipping, leasing, banking and finance, securities, fishing, company disputes, partnership, professional liability and intellectual property rights.

The mercantile court will also handle contract, trade and service provision, consumer and service recipient protection in cases worth more than Rf15 million (US$1 million).

During today’s preliminary debate on the bill, opposition MPs raised concern that allowing a foreign judge to sit on a Maldivian court would threaten the country’s independence.

MP Ibrahim Muttalib, who recently rejoined the religious conservative Adhaalath Party, alleged that the bill was part of a government “plot to destroy and dis-empower the judiciary.”

“We should be alert to the government’s efforts to change this country’s constitutional system with the scheming of the Jews,” he said, adding that the bill was drafted “under this scheme” by Independent MP for Kulhudhufushi South Mohamed Nasheed, who served as Legal Reform Minister in the last years of the former government.

“If this court is established, in order to bring the judiciary into disrepute, within a few days of its formation there will be courts established in every inhabited island and existing courts will be made redundant,” he claimed.

Other opposition MPs contended that there were enough qualified professionals with the requisite experience in the Maldives.

“If there aren’t competent enough judges, they can be trained,” suggested MP Hassan Latheef.

Appointing foreign judges to a Maldivian court was “completely unacceptable,” said MP Abdul Azeez Jamal Abubakur, objecting to different criteria for Maldivian and foreign judges in the bill.

MP Dr Abdulla Mausoom of the Dhivehi Rayyithunge Party (DRP) acknowledged the need for the legislation but questioned the provision for two foreign judges.

Presenting the legislation on behalf of the government, MP Mohamed Musthafa of the ruling Maldivian Democratic Party (MDP) stressed the “urgent” importance of establishing international standards for dispute resolution in the Maldivian judiciary.

The lack of legal protection for foreign investors in the country was “the main challenge” to operating their businesses, Musthafa explained.

The provision to allow a foreign judge on the bench is to seek expert assistance from foreign judges to establish the court, Musthafa continued, which would have the same status or rank as a superior court.

The court would also have the authority to transfer cases from other courts that fall under its jurisdiction.

Investor confidence

The legislation comes in the wake of concerns aired by international organisations such as the International Committee of Jurists (ICJ) that the existing Maldivian judiciary lacked the independence and capacity to rule in cases involving complex civil proceedings.

Speaking to Minivan News in March after several weeks observing the operation of the Maldives’ Judicial Services Commission (JSC), former Australian Supreme Court Justice Professor Murray Kellam said that an impartial judicial system was a key factor in encouraging foreign investment and could have a direct and significant impact on the economy.

This was something that Singapore recognised 15 years ago, he said.

“They understood the value of a civil system that is incorruptible and competent. They spent a lot of money on their judiciary and Transparency International now rates their civil legal system as one of the best in the world.

“Singapore realised that one of the best ways to attract investment was to have a system whereby international investors knew they would get a fair go in domestic courts. If you look at the circumstances in other parts of the world where investors have no confidence in the judiciary, that deters investment and takes it offshore. They’ll go somewhere else.

Citing Adam Smith, considered one of the founders of modern capitalism, Kellam observed that “Commerce and manufacturers can seldom flourish long in any state which does not enjoy a regular administration of justice, in which people do not feel themselves secure in possession of their property, in which the faith of contracts is not supported by law.”

As a foreign investor, Kellam said, “you want to know that contact you enter into with domestic partners will be understood and enforced by courts if there is a breach. You want courts to judge you impartially – you don’t want to be discriminated against because you are a foreigner.”

“Secondly, it’s no good getting judgement if no there is enforcement – which is a major factor in developing countries. Sure you can get a judgement, but it’s not worth the paper it’s written on because there is no process for getting it enforced, and you can’t turn judgements into anything productive.”

Singapore had recognised this, and become not only a hub for foreign investment but also a regional hub for commercial arbitration, Kellam said.

“People from around the region will use Singapore as a place of law and business,” Kellam observed.

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Taxation debate begins in parliament

Parliamentary debate on the government’s economic reform package began today with preliminary debate on legislation to introduce a five percent General Goods and Services Tax (GST).

The International Monetary Fund (IMF)-sanctioned economic reform package also includes bills on business profit tax and income tax as well as amendments to the Tax Administration Act and the Import-Export Act.

Introducing the draft legislation, MP Mohamed Aslam of the ruling Maldivian Democratic Party (MDP) explained that the government’s aim was to replace the current indirect tax in the form of import duties with direct taxes.

“When this bill becomes law and the government stops depending on import duties for income, the main benefit would be that businesses would not have to pay a tax before selling their goods,” he said. “As a result, businesses will expand, there will be increased cash flow for investment and business confidence will be strengthened.”

Once direct taxation was in place, Aslam continued, import duties would be reduced or eliminated on January 1, 2012 concurrently with a hike in the Tourism Goods and Service Tax (TGST) introduced this year from 3.5 per cent to 6 per cent.

Moreover, the government plans to raise the TGST to 10 per cent in 2013 and abolish the current bed tax of US$8 per tourist in the same year.

If the legislation is enacted, said Aslam, tax revenue in 2012 is estimated to be Rf3.2 billion (US$249 million) and Rf4.9 billion (US$381.3 million) in 2013.

The “fundamental purpose” of taxation was equitable distribution of wealth and reducing income disparity, Aslam said: “This is how it’s done in civilised societies. Without taxation, we cannot bring development and prosperity for the people.”

Opposition

“I believe that while taxation is important, the dates for introducing taxes as well as the tax rates should not be determined before properly studying the effects on the whole economy,” said Dr Abdulla Mausoom of the main opposition Dhivehi Rayyithunge Party (DRP).

As a result of inconsistency and “sudden changes to the government’s economic policy,” Mausoom claimed that investors had lost confidence in the Maldivian economy.

While welcoming the elimination of import duties, the DRP MP for Kelaa urged the government to protect the local agriculture industry from foreign competition.

Mausoom also called on the government to revise government working hours to allow civil servants to complement their incomes with part-time jobs, arguing that civil servants deserved a 20 percent pay rise in light of the decision to float the exchange rate within a 20 percent band.

Mausoom further claimed that the main source of “wastage” in the budget was expenditure on political appointees.

“The government should not waste tax revenue needlessly,” he said. “There was a time when the King took taxes from merchants, impoverished the people, and used it for revelry. That time is past.”

“At a time when the gap between rich and poor is widening, I don’t believe at all that this is the best time, the perfect time, the ripe time to take taxes,” said DRP MP Ali Azim, adding that “such an important step must only be taken after proper research and study.”

Azim however conceded that taxation was necessary for the government to provide public goods and services, but repeatedly insisted that the time was not right.

“I am reminded of the Jewish way of doing things,” he said. “That is, further impoverishing those who are already poor. Forcing citizens to beg and telling them, if you sign this [membership] form, you’ll get things done.”

Azim added that citizens should not have to pay taxes even if the bill was passed, claiming that the government continued to disregard laws passed by parliament if it did not suit the current administration.

DRP MP for Vaikaradhoo Ali Arif argued that the public would be adversely affected if a number of different taxes were introduced all at once.

“We are now taking seven per cent from every worker as a contribution to our pensions,” he explained. “We are saying do this gradually. When you take everything at once, the Maldivian citizen is going to fall down.”

Maafanu West MP Abdulla Abdul Raheem, who defected from DRP claiming that “a few tycoons” were opposing taxation, meanwhile underscored the need for sustainable sources of revenue by pointing out that the state was in debt to the tune of Rf18 billion (US$1.4 million) because of deficit financing through loans.

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