The government has said President Abdulla Yameen’s flagship Special Economic Zone (SEZ) legislation would bring an end to the Maldives’ dependence on tourism. The bill aims to create jobs, and stimulate investment in the Maldives’ underdeveloped atolls and bring in long term development.
However, the special incentives and tax breaks to corporations and limited oversight in the bill paint a different picture – SEZs will only institute a system of economic slavery in the Maldives.
The bill proposes handing over control of the Maldives’ atolls to corporations, and suggested lax regulations will allow money laundering, and increase corruption and inequality. It may also become a tool for resort owners to legally evade taxes.
What are SEZs? They are specific geographical areas within a country’s borders with relaxed regulations, financial incentives, and facilities to attract investment and create jobs.
The Maldives has plans to set up nine zones, including free trade zones, offshore finance zones, high-tech zones, and ports. The SEZs are to be administered by a 17-member board consisting largely of government officials.
Incentives for SEZ developers include exemptions from import duty, Business Profit Tax (BPT), Goods and Services Tax (GST), and withholding taxes, and concessions in bringing in expatriate workers. There are no regulations on money remittance, and the bill also provides for land lease periods up to 99 years. Further, any company with a majority of local owners (51 percent) can buy and own land without paying land taxes.
Centralization
Local communities may not receive any benefits from investments in SEZs. According to Article 33, once an area is designated an SEZ, local councils will no longer have authority over the area. All the revenue will bypass local councils and go into the state budget. This may mean the end of decentralization in the Maldives.
It suggests and propels a move towards a centralised autocratic government. Moreover, atolls of the Maldives will be controlled by business tycoons rather than elected representatives.
Corruption
The freedoms in money remittance without government oversight and single window clearance for various government approvals could result in a reduction in finance and trade controls, opening up opportunities for money laundering and financing of terrorism. For the same characteristics that make SEZs attractive to legitimate businesses, also attract abuse by illicit actors.
The SEZ bill allows the SEZ board to override all controls in proposed in the bill. The board can add a number of additional incentives such as extended tax relief, extended land lease periods for foreign companies up to 99 years and increase foreign labor quotas. Such excessive power in the board’s hands will lead to corruption, inequality and may result in the rich controlling SEZs with very little scope for future entrepreneurs.
Tax Evasion
The proclaimed purpose of the SEZ bill is to attract investment in other industries, but the bill, in fact, grants excessive benefits and tax relief to the tourism sector.
Article 74 states up to 40 percent of investment in any special economic zone could be in tourism or tourism related industries. Hoteliers will not have to pay import duty on capital goods, and will be exempted from paying Goods and Services Taxes (GST), Business Profit Taxes (BPT) and withholding taxes for two years. Shareholders will not have pay BPT on their dividends, and companies will be granted concessions in employing expatriate workers.
All of these concessions can be extended further and land taxes can be waived on the recommendation of the SEZ board.
Maldives already attracts multi-million dollar investments and international brands in the tourism sector under existing laws, and the sector already makes vast profits. There are already many top international hotel brands in the Maldives, we do not need SEZs to ensure investor protection or attract investors in the tourism sector. If these businesses had not been sure of their investments, they would not have invested in the Maldives in the first place.
The incentives granted for the tourism sector in the SEZ bill means most of the investments in the SEZs will end up as tourism investments, and will allow resort owners to legally evade taxes.
According to MIRA’s records, the government’s main source of income at present is Tourism Goods and Services Taxes (TGST) and BPT, and the main sources of dollar income are TGST and other tourism sector taxes. The tax reliefs and exemptions will reduce TGST, BPT, and other tourism taxes, which will in turn reduce state income and dollar income.
Ultimately, the reduction in the state’s income means an increase in debt and deficit, whilst reduction in the state’s dollar income would hand over control of the dollar market to tourism tycoons.
As the Maldives currently lacks a set minimum wage, and as developers in the SEZ have the right to bring in any amount of expatriate workers, most of the SEZ jobs will also go to expatriates preventing locals from benefiting at all.
President Yameen has previously pledged to create 94,000 job opportunities. The SEZ bill will create jobs, but only for foreigners?
Wealth concentration
A majority of Maldivians live without clean water, proper sewerage systems or medical and educational facilities. We are a rich country with a small population, but 90 percent of our wealth is concentrated in the hands of a mere 10 percent.
In the context of high inequality, high corruption and incompetent courts, the SEZ bill may very well hand over ownership of this country’s resources to a handful of corporations. Corporations end to be driven by power and financial gain, and in the absence of oversight, will not work for the public good.
History had shown a correlation between huge investments and corruption and civil unrest. These investments ultimately help authoritarian governments to stay in power by buying off their citizens. Investors will fund the governments who provided them with profit-making opportunities to buy off their citizens.
Laws that are made in the interest of corporations and business tycoons result in economic slavery. Corporations want profits and the best way for them to get the profits is to use political party campaign financing system i.e. a system of legalized bribery. This way they can control government officials, politicians, and the public.
They use those government officials and politicians to dismantle the marketplace, to obtain monopoly control, and ultimately privatise the commons. The SEZ bill allows corporations to turn our wealth, our air, our water, our public lands, our wildlife, and our fisheries into profit.
The Maldivian Economist is a Facebook Group which aims to create a platform for debate on the Maldivian economy, finance and policies.
Photo courtesy of Rajjetherey Meehunge Party.
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