Tag: economic reform package

Parliament overrides presidential veto on sole traders bill

Parliament today passed a bill on sole traders, which was previously vetoed by President Dr Mohamed Waheed, with the unanimous consent of all 53 MPs participating in the vote.

Under article 91(b) of the constitution, a bill returned for reconsideration and passed by a majority of total membership of parliament has to be “assented by the President and published in the government gazette.”

MPs also voted unanimously to pass a bill on arbitration at today’s sitting of the People’s Majlis.

Both pieces of legislation were submitted in late 2011 under the economic reform package of the ousted Maldivian Democratic Party (MDP) government. The arbitration bill proposes the introduction of alternative dispute resolution in the Maldives.

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Government withdraws amendment to abolish Foreign Investment Act

The government today withdrew at the preliminary stage a bill to abolish the Foreign Investment Act of 1979, one of 18 pieces of legislation proposed under its economic reform package currently before parliament.

Presenting the draft legislation in August, MP Alhan Fahmy of the ruling Maldivian Democratic Party (MDP) said the purpose of the bill was to remove restrictions and open the country to unhindered investment by foreign companies.

Alhan announced today that the ruling party decided to pull out the bill in light of parliament rejecting the proposed company law last week.

“It is not that our thinking and economic policy has changed at all,” he said, adding that all components of the reform package was necessary to achieve the government’s objectives.

Foreign direct investments were to be regulated under the proposed company law, which would have replaced the existing Companies Act enacted in 1996.

In a booklet issued to the media by the Dhivehi Rayyithunge Party (DRP) outlining concerns with the economic reforms, the main opposition party opposed the abolition of the Foreign Investment Act on the grounds that it protected domestic industries and small businesses.

The party noted that the proposed company law did not contain protectionist measures or special benefits for local businesses.

“Instead of abolishing the foreign investment law, it would be better to amend and modernise it to pave the way for foreign investments in the country,” it reads.

Moreover, the DRP “could not agree to sell the country’s remaining assets to the MDP’s friends” after “[losing control of] the country’s main gate, the international airport, the national telecom service, and Maldivian seas and shallows.”

During the preliminary debate in August, Kelaa MP Dr Abdulla Mausoom, recently appointed DRP parliamentary group deputy leader, accused the government of trying to turn the Maldives into the “money-laundering machine of the world” by deregulating or removing restrictions to foreign investments.

Other opposition MPs claimed that the bill was part of an agenda to “sell off state assets” and undermine national interests and sovereignty.

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Parliament rejects proposed company law

Parliament yesterday rejected at the preliminary stage a bill proposed by the government to modernise the existing Companies Act as part of its 18-bill economic reform package.

The bill was narrowly rejected 37-36 in a vote to send the draft legislation to committee for further review.

Jumhooree Party (JP) Leader Gasim Ibrahim – who voted with the ruling Maldivian Democratic Party (MDP) in August to pass the Goods and Services Tax (GST) legislation, the first of the 18 economic reform bills to be passed – cast the swing vote against the proposed company law.

According to the government, the purpose of the bill was to modernise bureaucratic procedures for formation and registration of companies and facilitate ease of doing business.

Among the main changes proposed to the existing law were enabling formation of companies with a single shareholder or a single director (the law currently requires at least two); abolishing the annual companies fee; specifying procedures for seeking authorisation from government agencies along with registration procedures for foreign investment companies; enabling the registration of branches of foreign or multi-national companies in the Maldives; outlining criteria for company directors and managing directors; specifying procedures for public disclosure; streamlining the process for dissolving registered companies; and delegating the tasks of the companies registrar to local councils.

During the preliminary debate stage, opposition MPs however contended that as a Companies Act was enacted in 1996, the government could not propose a bill under the same name.

MP Abdulla Yameen, who served as Trade Minister and chairman of the State Trading Organisation (STO) under the previous government, objected to a provision stipulating that the minimum capital required to register a company would be Rf2,000.

With the country’s level of development and an annual budget in excess of Rf12 billion, said Yameen, the figure was too low especially if directors’ and shareholders’ liability would be limited.

“The bill also proposes the creation of companies for a particular project. For a particular period,” he continued. “Private companies or limited liability companies are not formed for certain periods. They exist for perpetuity […] Therefore you cannot create a company to reclaim land in Gulhifalhu or a company for a three-year project.”

Moreover, Yameen added, the proposed law would give legal discretion to the registrar of companies or an official appointed by the President to deny requests for company registration if it is believed to pose a threat to national security.

“However, under the existing laws in the Maldives, a court of law shall determine that national security is endangered,” he said. “It is not something a registrar, a single person, could decide.”

Granting such discretion to a single state official, including the power to dissolve companies if it is believed to be in the public interest, was “how things are done in uncivilised countries,” he said.

MP Mariya Ahmed Didi, former chairwoman of the Maldivian Democratic Party (MDP), meanwhile argued that the concept of limited liability was “the means that advanced nations used to reach modern development.”

“Because we are unfamiliar with this concept what happens is that people are reluctant to invest their money in a business,” she explained, adding that the law would ensure that shareholders would be liable to the company’s debt only to the extent of their shareholding.

“Nothing positive”

Speaking to Minivan News today, MP Dr Abdulla Mausoom, deputy parliamentary group leader of the opposition Dhivehi Rayyithunge Party (DRP), said that the bill was framed to “give extra powers to the executive” and “open up the country to foreign businesses.”

Mausoom noted that there was an existing law that governed company formation and registration.

The DRP also objected to the government’s proposed amendments to the Immigration Act to grant resident visas to skilled expatriates as well as a bill to abolish existing foreign investment laws, Mausoom said.

“We voted against [the proposed company law] because we didn’t see anything positive in the bill,” he said.

Economic Development Minister Mahmoud Razi told Minivan News that the proposed company law was important to “level the playing field” and streamline business registration procedures to “make them simpler and more cohesive.”

As parliament had rejected the bill at the preliminary stage, said Razi, the government could not submit the bill again during the ongoing session.

“But we will consult with the legal people and stakeholders to propose the bill as amendments to the existing Company Act for the next session,” he said.

While it would have been “ideal” to pass all the component bills of the reform package on schedule, Razi continued, yesterday’s vote did not constitute a serious setback to the reform programme.

“It will have an impact, yes, but it will not be a very negative impact,” he said.

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Preliminary debate begun on three bills

Parliament began preliminary debate on three bills during its sittings this week, including legislation on small and medium-sized businesses proposed by the government as part of its economic reform package.

Presenting the bill on Monday, MP Nazim Rashad of the ruling Maldivian Democratic Party (MDP) said the legislation would establish a centralised mechanism to register small businesses and facilitate loans for investment.

In the next sitting on Tuesday, Independent MP Ali Mohamed presented a bill on medical devices. The former opposition Dhivehi Rayyithunge Party (DRP) MP explained that the absence of relevant legislation on medical equipment precluded hospitals from ascertaining their quality.

The legislation would encourage training staff to operate the machinery and establish a regulatory board to enforce standards.

Meanwhile at today’s sitting, the last of the week, preliminary debate began on the government’s arbitration bill, which seeks to introduce alternative dispute resolution in the Maldives. The bill is also part of the government’s 18-bill economic reform package.

The first of the reform bills – now the General Goods and Services Tax (GST) Act – was passed at the final sitting of the last session on August 29.

Also during this week’s sittings, the government’s bill to amend the Import-Export Act of 1979 to reduce and eliminate custom duties entered the final committee stage. The amendment bill is likely to be put for a vote when Majlis resumes next week.

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Goods and services tax bill passed with 40 votes

Parliament today passed the Goods and Services Tax (GST) bill, a key piece of legislation in the government’s 18-bill economic reform package, with 40 votes in favour and 30 against.

Of the 71 MPs present and voting, only one abstained. Jumhooree Party Leader Gasim Ibrahim and Independents Ali Mohamed, Ahmed ‘Sun Travel’ Shiyam, Mohamed Zubair, Ahmed Amir and ‘Kutti’ Mohamed Nasheed joined the ruling Maldivian Democratic Party (MDP) in voting for the bill.

After today’s sitting, parliament breaks for a one-month recess before returning in October for this year’s final session.

The new sales tax will come into force a month after the legislation is ratified by the President and published in the government’s gazette.

While the GST is set at 3.5 percent this year, it will rise to six percent from January 2012. Utilities, health services, public education, telecom services, petrol, cooking oil and diesel are among items exempt from the tax.

The GST will be applicable to businesses whose total goods and services offered over a year exceeds Rf 1 million (US$65,000).

In addition, the legislation will raise the existing Tourism Goods and Services Tax (T-GST) to six percent in January 2012 and eight percent in January 2013.

“Undue burden”

During today’s final debate, opposition MPs argued that local businesses would not have enough time to prepare to pay the GST and that necessary improvements in records keeping would be an “undue burden” on small businesses.

Prominent businessmen and resort owners, such as Jumhooree Party (JP) Leader Gasim Ibrahim and Independent MP Ahmed ‘Sun Travel’ Shiyam, criticised the bill and suggested that the introduction of the GST should be delayed. Both MPs however voted for the bill.

In a booklet handed out to media yesterday, the main opposition Dhivehi Rayyithunge Party (DRP) noted that the General GST would affect small businesses such as cornershops, cafes and teashops, which would “need a lot of preparation” to maintain accounts, install “modern computer systems and hire accountants” as well as provide customer’s statements showing the GST percentage.

Morever, taxing “total value of business transactions” would not be possible with GST at zero percent for some items.

Considering the potential “administrative confusion” and the country’s heavy reliance on imports, the DRP argues that levying a customs duty at the entry point to the country was more effective.

“Eid gift”

Speaking at a press conference after today’s vote, MP Ibrahim ‘Ibu’ Mohamed Solih, Maldivian Democratic Party (MDP) parliamentary group (PG) leader, noted that as a result of amendments proposed by opposition MPs to exempt cooking oil, petrol, diesel and telecom services from the GST, the government would face a projected revenue shortfall of Rf167 million (US$10.8 million) this year and Rf274 million (US$17.7 million) in 2012.

“Budgeted funds for development projects are going to be lost because of [the amendments],” he said. “As a consequence, the government will have to either push back or revise some development projects.”

MP Mohamed Aslam, deputy PG leader and chairman of the Economics Committee, said that the passage of the GST bill was “an Eid gift to the Maldivian people.”

Aslam explained that the GST alone would account for Rf2.7 billion (US$179 million) in tax revenue for 2012.

Deputy PG leader Ahmed Sameer meanwhile accused opposition MPs of “trying to cut off sources of income for the government” while supporting bills that would increase expenditure in a bid to sabotage the government’s efforts to balance the budget.

On proposed amendments to the Export-Import Act to excise and reduce import duties for most items, Ibu Solih said that the amendment bill had been reviewed by committee and sent to the Speaker.

“I think it was not included in today’s agenda because there was no time. It’s an administrative matter that is up to the Speaker,” he said.

A source at the President’s Office told Minivan News yesterday that the GST was intended to replace custom duties and crossover would see the same commodities being taxed twice.

Ibu Solih explained that the party expected the amendment bill to be passed in the first week of the next session before the GST is collected: “So there would be only two or three days difference [between enactment of the laws] and we believe it would become adjusted,” he said.

The MP for Hinnavaru also disputed a claim by the DRP that the government refused to accept a suggestion to delay the implementation of the tax by three months.

Following “technical level” consultations with the government after President Mohamed Nasheed signalled willingness to incorporate changes recommended by the opposition, the DRP however declared it would issue a three-line whip for its members to vote against the GST bill.

The announcement was made after a number of DRP MPs voted last week to approve the bill with amendments brought by the full Majlis committee.

“We have said that we will consider amendments proposed by opposition parties, but even up to the last moment, no opposition MP spoke to us about possible amendments,” Ibu Solih said, adding that the MDP proposed “sitting down at the table to discuss any changes.”

However the DRP did not discuss delaying the enactment of the GST legislation before submitting an amendment to the Majlis floor during the final committee stage.

“I believe if we are to discuss between two parties to reach a decision, the discussions should take place before the amendment is proposed,” he said.

“We sat together and brought amendments to the Export-Import Act and took the GST bill together with MPs from both sides at the table. It passed the sub-committee after both sides agreed. Because of the amendments to the Export-Import Act, government revenue will be reduced substantially. We were able to agree that we’d make up for it with the GST in a fair manner. But when it is proposed to reduce revenue to the state from both bills, we can’t support that.”

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Government seeks bipartisan support for economic reform package

President Mohamed Nasheed has signaled the government’s willingness to address opposition concerns and incorporate changes to the proposed economic reform bills currently before parliament.

Speaking to press following an official meeting with main opposition Dhivehi Rayyithunge Party (DRP) Leader Ahmed Thasmeen Ali at the President’s Office last night, Nasheed said that the government would consider DRP proposals after “discussions at a technical level.”

“Our wish is to find a way to enter into detailed discussions with the DRP,” he said. “I asked Thasmeen about it and he said they will give an answer after consultation with their party.”

He added that broad consensus and bipartisan support was very important before putting a taxation system in place: “In my view, all citizens and politicians in the country understand very clearly that establishing a taxation system is not going to benefit a particular government,” he said.

President Nasheed noted that the government had consulted the tourism industry and received support for the proposed reforms.

Thasmeen meanwhile told press outside the President’s Office that he conveyed concerns about the proposed growth in expenditure over the next two years as well as the impact of the personal income tax.

“We cannot accept government expenditure exceeding the current Rf13 billion [annual state budget] after levying new taxes,” he said.

The minority leader of parliament said that the party was “especially concerned” about the income tax as “all citizens would be affected.”

Speaking to Minivan News today, DRP MP Dr Abdulla Mausoom confirmed that “a technical team” from the party will engage with the government to discuss details of the concerns expressed by Thasmeen at last night’s meeting.

“We have a parliamentary group meeting tonight to discuss what the DRP is going to propose,” he said.

The “prime focus” at the moment was the two bills completed by committee, said Mausoom, which were bills on the General Goods and Services Tax and an amendment to the Import-Export Act to excise and reduce import duties.

While final amendments to the bills are due before Tuesday, Mausoom said that the DRP would propose maintaining import duties for “watermelons, papaya, bananas and mangoes to protect local farmers” and ensure price competitiveness for local agricultural produce.

“The rest is the way the MDP wanted,” he said. “With the numbers in parliament right now, MDP can pass bills the way they want.”

President Nasheed meanwhile told press last night that Thasmeen gave assurances that he would “not play any part in bringing Majlis to a halt.”

“As you know, the government has support enough to pass the bills,” he said. “But that would not be best for both the government and the people for such a major change.”

Nasheed stressed that a comprehensive package was proposed to ensure that the new taxation system would be “well-rounded and water-tight.”

Concluding the press conference, President Nasheed praised Thasmeen for showing the “necessary principles of a statesmen.”

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Weekly state expenditure to be made public

The government will publicise details of weekly state expenditure starting from next month, President Mohamed Nasheed announced Monday night at the launching of the government’s “Fiscal and Economic Reform Programme.”

In his speech at the ceremony, President Nasheed stressed that “every single coin we get is the property of the Maldivian people and wealth created by Maldivian businessmen.”

“Along with a tax system, what we need the most is a transparent mechanism for expenditures,” he said. “For that mechanism to be perfect is essential for us to successfully implement the [taxation] system.”

At Monday night’s ceremony, captains of the tourism industry unreservedly endorsed the economic reform agenda, consisting of 18 pieces of legislation to introduce direct taxation, excise import duties, encourage private ownership of land and facilitate ease of doing business.

President Nasheed went on to say that details of government revenue and expenses should be clear to the public through independent institutions, such as the Auditor General, the Anti-Corruption Commission and parliament.

“It might be difficult for this government to instill this habit among us,” he continued. “However, it is absolutely necessary for governments to come and future generations. No ruler should consider anymore that assets of the Maldivian state belongs to him.”

On how proceeds from the new taxes are to be utilised, Nasheed reiterated the core pledges of the ruling Maldivian Democratic Party (MDP), which include providing affordable housing, lowering cost of living, establishing transport networks, ensuring universal health insurance and combating drug abuse and trafficking.

President Nasheed observed that taxation was introduced in other countries after “serious unrest, conflict between the public and businessmen and with some countries plunging into civil war.”

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“Taxation system long overdue,” says MATI

The Maldives Association of Tourism Industry (MATI) has declared its support for the government’s economic reform programme and the introduction of direct taxation.

In a press statement yesterday, the association of industry leaders noted that the absence of a taxation system in the country “similar to tax regimes successfully implemented in other countries” was a serious impediment to development and economic growth.

“The introduction of such a taxation system to the Maldives is long overdue,” MATI said in its statement.

As the enactment of direct taxation would increase state revenue and reduce government borrowing from banks, “this association believes that banks lending to private businesses will increase and job opportunities will be created.”

“This association believes that as a result of [the economic reforms], economic growth will quicken and challenges faced by the Maldives tourism industry will be solved,” the statement reads.

MATI warned that “it is certain” that if state revenue was not increased “with immediate effect” the domestic economy would be adversely affected.

Consultations

The statement of support from MATI comes after the Tourism Ministry last week condemned “misleading statements in the media” by the organisation about the government’s proposed economic reforms.

The Tourism Ministry claimed that “MATI’s misleading statements in various media recently about the tax bills of the government’s economic reform agenda imply that the government’s efforts were undertaken without consulting officials from the tourism industry.”

The Ministry said it had “consulted a number of parties active in the tourism sector and sought advice for shaping the tax bills so that it would not be a disproportionate burden on the industry.”

“After these consultations, the Ministry is assured that businesses in the tourism industry support the reform agenda. Likewise, those in the front ranks of the tourism industry as well as MATI support it. Therefore, [the ministry] regrets an organisation like MATI making statements that are contrary to the advice and suggestions of senior industry leaders.”

President Mohamed Nasheed has meanwhile welcomed MATI’s support for the government’s fiscal and economic reform plans.

“The President believes that the fact that MATI agreed to fully support the government in its economic reform programmes, after deliberations between MATI and the government, is a sign that they support the measures taken by the government to improve the state of the Maldivian economy and increase the state’s income,” reads a statement from the President’s Office today.

Recommendations

Following consultations with the government, MATI proposed a series of recommendations on the new taxes.

In its comments on the proposed legislation – obtained by Minivan News – MATI stressed the need to educate the public and ease in the taxes gradually.

“There is a need to study the effects of the combined burden of having to pay all these taxes on those affected,” the association noted.

On the introduction of a five percent General Goods and Services Tax, despite the successful introduction of a Tourism Goods and Services Tax (T-GST) in January this year, MATI noted that “T-GST was collected from a highly regulated sector of the economy. The same cannot be said of the other sectors of the economy or of the general public who would end up paying this tax.”

MATI argued that the GST could stoke inflationary pressures, urging “careful study of the effects of GST on the economy.”

“For the tourism industry – Costs of local purchases will go up by the GST amount or more. Direct imports will increase in order to avoid GST. Resorts will have to pay both T-GST & GST,” MATI noted. “Confusion will arise due to different rates being applied. In view of this it is suggested that eventually the two taxes should merge into one GST.”

The organisation also recommended delaying the introduction of a private income tax (PIT) to January 2013 to establish a regulatory framework and raise public awareness.

The organisation contended that the progressive income tax rates – from 3 percent to 15 percent for incomes above Rf30,000 (US$1,900) – were “especially targeted at the very rich.”

“Under the proposal, people earning one million rupees per year will pay about 2.8% of their income as PIT, whereas a person earning MRF10 Million per year will pay about 13.25% of the income as PIT,” it noted.

Moreover, MATI urged that plans to raise the current 3.5 percent T-GST to 6 percent in January 2012 and 10 percent in January 2013 be scrapped in favour of retaining the current rate until a recommended hike to 7 percent in January 2013.

“Tourism industry is already paying a lot to the Government and therefore, we urge the Government to give the industry a breathing space to help the industry revive from low occupancy, heavy operating costs and the economic chaos caused by recent financial crisis in Europe,” MATI said, cautioning against high taxes leading to the Maldives becoming “an even more expensive destination.”

MATI further noted that the taxes were “especially heavy on the tourism industry and will result in a very negative impact on the industry.”

“Tourism will cease to be an attractive industry to invest in. As a result, new investments will be slowed. Proposals to banks to borrow will not look that attractive any more. Bank lending to this sector will become more and more selective. This is not what we like to see in this country,” MATI stated. “Finally, should we continue to ‘milk the cow dry’? Certainly not is the answer.”

“Agreeable”

President Mohamed Nasheed responded to MATI’s recommendations in a letter yesterday, expressing the government’s gratitude for the comments.

“The purpose of these reforms are to set in place the foundation needed to build a strong and modern economy befitting the Maldives’ status as a middle-income country, and to enable the state to provide the necessary services that the people of this country expects,” the letter reads. “In addition to the tax reforms that will allow for a sustainable revenue base, the government’s programme include important reforms such as facilitating the ease of doing business and strengthening property rights.”

On the recommendations by MATI, the President’s letter noted that “the government is agreeable to reduce the proposed rate of tourist sector GST to become effective from January 2013 to 8 percent from the current proposed rate of 10 percent.”

The government was also “agreeable” to MATI’s proposals on capital allowance, pension payments and deducting interest payments from banks and other financial institutions in full, the President’s letter states.

On the impact of the taxes on the economy, the letter notes that “studies have shown that proposed tax rates are lower than those in other island economies and thus will not have an overbearing effect.”

Addressing skepticism of balancing the state budget with the new revenue sources, President Nasheed said that “the revenue impact on the proposed taxes will bring income up to a level where necessary expenditures can be met and lead to a balanced budget in 2015.”

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