Tag: GST

Former President criticises government’s fiscal policy

Former President Mohamed Nasheed has predicted that the people he believes to have been behind his removal from office will soon reduce the Goods and Services Tax (GST) by one third.

Speaking on his tour of Kaafu Kaashidhoo, Nasheed said that the small number of businessmen accused of being behind last month’s coup d’état would resist sharing even a minor portion of their wealth with the people.

He criticised the government for allowing resort owners to pay bed taxes in instalments, contrary to his own administration’s lump sum policy which, he argued, helped fund public services.

Nasheed’s tour also took in Kaafu Gaafaru before his return to Male’ yesterday.

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Former finance minister Inaz leaves MDP

Former Finance Minister Ahmed Inaz has confirmed his decision to leave the Maldivian Democratic Party (MDP).

Inaz did not give a reason for his decision, but told local newspaper Haveeru that the move “puts an end to my political career for now”.

In a response to Minivan News, he said he would “always remain independent and serving the national interest”.

Inaz was appointed after the then-opposition majority parliament unseated Finance Minister Ali Hashim in November 2010, along with six other cabinet ministers.

That vote came after three weeks of disruption in parliament, a stalemate ended only when MPs of the ruling Maldivian Democratic Party (MDP) boycotted the sitting before voting began.

Inaz’s resignation followed an incident in December 2011 in which MDP activists “dragged” him from a car in which he had been spotted hold holding a covert meeting with former president Gayoom’s half brother, MP Abdulla Yameen.

MDP activist Ibrahim ‘Dhonbeli’ Haleem told Minivan News afterwards that he had observed Inaz and Yameen holding a discussion “for two hours” near Male’s South Harbor, “a dark area poorly lit that is only really frequented by boys and girls, not for official business.”

“I told Inaz it was wrong, that Yameen is an enemy and why is he going to this area to hold a business meeting. If he needs to discuss business he should do it in his office.

“Inaz admitted it was wrong, and the MDP activists were yelling and shouting so I took him on my bike to Haruge (MDP headquarters),” claimed Dhonbeli.

Inaz would not confirm that this was the reason for his resignation at the time.

Tax advocate

Inaz’s term as finance minister was characterised by swiftly-enacted tax reforms, passed amid juggling many conflicting political interests and a campaign to sell the concept to the public.

Inaz noticeably took the time to meet with businessmen, parliament and opposition party delegations to explain the reasons and rationales for the various reforms he was implementing.

“All the businessmen I have met – all the reasonable businessmen I have met – believe that the country has to move to a much more structured, predictable and more coherent system of governance. And to do that we need an economic system that supports social change, and supports the change we have brought politically,” he told Minivan News, in an interview in May 2011, shortly after becoming minister.

“To sustain their businesses it is important that they have social and political stability. It would be a grave mistake if one stands up and says they don’t support [income tax], because that will bring instability to the country and harm businesses,” he said.

Under Inaz, the Maldives implemented a tourism goods and services tax (TGST), general GST and business profit tax, and was working towards an income tax for those earning over Rf 30,000 (US$2000) a month. Nasheed’s government maintained that combined, these elements would give a full picture of the money and assets in the country, and avoid the hiding of company tax revenue with individuals.

New Economic Minister Ahmed Mohamed announced at a press conference yesterday that policy of income tax would temporarily be halted, according a report in Haveeru.

Under Inaz, the Maldives Inland Revenue Authority (MIRA) also took over most of the Maldives’ government’s cash handling, greatly reducing petty counter-level corruption across the public sector and giving a single picture of government income.

Inaz also pushed – against subtle but solid opposition – for the rufiya to be used as legal tender for all transactions in the Maldives, aside from tax collection.

Most resorts continue to charge tourists in dollars, a practice which is contrary to monetary policy and technically illegal, but ignored by the Maldives Monetary Authority (MMA). Those dollars swiftly leave the country for more financially-stable shores, instead of generating a demand for the local currency at the point of sale. The country consequently has a dollar shortage, banks have little money to loan, and the average population benefits little from the tourism industry beyond employment – for which they are paid in rufiya.

“What other country has prices in another country’s currency?” Inaz asked Minivan News, in May 2011.

A key moment under Inaz’s term as finance minister came with the discovery that based on income from the TSGT, the tourism economy was 300-400 percent previous estimates.

“Previously we had thought tourism receipts for the country were around US$700 million. But since collection of the 3.5 percent Tourism GST it has come to light that the figure is around US$2.5-3 billion,” then President Nasheed said during a press conference in June 2011.

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“Tariff rationalisation a positive to economy”: Care Ratings Maldives

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.

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Retailers expect prices of foodstuff to fall

Prominent retailers expect prices of foodstuff to come down in about a month following the elimination of import duties for a range of items on January 1, 2012, reports Haveeru.

Owner of BHM Traders Hussein Moosa told the newspaper that prices of coast milk, cooking oil and tea expected to arrive in a shipment later this month would be lower, adding that BHM has dropped the price of Ye Ye instant coffee yesterday.

Moosa said new prices would reflect savings from import duties or tariffs.

Owner of Lily Store ‘Malla’ Ahmed Nasir also said prices of goods imported after January 1st would be lower. He added that the shops would run out of old stocks at the end of this month.

Items with GST rate set at zero percent for which import duties have now been eliminated include rice, flour, sugar, salt, milk, cooking oil, eggs, tea, fish products, onions, potatoes, fruits and vegetables, baby food, diapers, gas, diesel and petrol.

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GST rises to six percent as revised import duties come into force

The General Goods and Services Tax (G-GST) passed by parliament last year rose to six percent from 3.5 percent yesterday while import duties were lowered or eliminated for a range of commodities starting on January 1, 2012.

The Tourism Goods and Services Tax (T-GST) was meanwhile raised to six percent for 2012 as stipulated in the GST Act.

Under the tax legislation approved last year, items with GST rate set at zero percent for which import duties have now been eliminated include rice, flour, sugar, salt, milk, cooking oil, eggs, tea, fish products, onions, potatoes, fruits and vegetables, baby food, diapers, gas, diesel and petrol.

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Maldives hopes “global slowdown” will bolster rufiya

Although the Maldives’ economy expanded in October, higher food and transport costs combined with the depreciating rufiyaa has bloated inflation rates to 8.3 percent, a CARE Maldives report has shown.

“Inflation during the period was mostly influenced by food index owing to the increase in prices of both fish (41.6%) and other food items (11.19%) followed by the increase in the transportation costs,” states the report.

“But this is not singular for this economy as rising prices have been witnessed across the globe,” the report contends.

Quoting a “global slowdown” in economic activity, the report suggested that international commodity prices are due to fall in coming months. The drop could temper the Maldives’ rising prices.

The recently-implemented Goods and Services Tax (GST) caused many Maldivians to note a price hike with anxiety. However, the President assured the people that further reforms scheduled for January 2012 would temper the new rates.

CARE Maldives suggested that a drop in international commodity prices would also reverse the widening trade deficit and declining reserves of foreign currency. Gross international reserves declined by approximately US$27 million between December 2010 and September 2011.

Statistics show an increase of US$33.2 million in reserves to date compared with August 2010, the report claims.

CARE estimates that the fiscal deficit will remain at 11 percent of the GDP; total revenue is expected to increase from 23 percent of GDP to 29 percent by the end of the year.

Meanwhile, total expenditure continues to surpass revenue. Records indicate a four percent increase from 37 percent of GDP in 2010 to 41 percent in 2011, primarily due to growing government salaries.

“The increase in expenditure mainly reflects the restoration of wages of government employees to the levels prior to 2009. The government has however taken some steps in terms of rationalisation of manpower. The overall fiscal deficit is estimated to remain at 11 percent of GDP.”

Approximately ten percent of the Maldivian workforce is employed by the government, an ungainly figure that has been targeted as a key hemorrhage point in the government’s budget. The Finance Ministry recently asked government institutions to curb job creation and new hires.

Earlier this month, President Mohamed Nasheed said the government aimed to bring the fiscal deficit down to a single digit number.

“Government expenditure has been substantially reduced in a number of different areas. For this year, we forecast a budget deficit of 11 percent. We have noted now that it has been reduced by three or four points,” he said.

CARE Maldives summarized its report by criticising the growing inflation rate and trade deficit, but praised government policies that target these issues.

“The progressive policy measures taken by the government especially on the exchange rate combined with declining commodity prices globally would help to reverse these trends.”

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Prices must be public: Economic Development Ministry

Shops are required to publicly identify items exempt from the Goods and Services Tax (GST), the Economic Development Ministry has ordered.

The ministry also requires businesses that charge GST on their goods and services to display their Maldives Inland Revenue Authority (MIRA) registration certificate.

Unregistered businesses may not charge GST and wholesale and retail prices should also be viewable.

Businesses that violate these regulations will be fined between Rf500-10,000. A second offense will incur a fine between Rf5,000-10,000.

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“Democratisation has its costs”: Maldives comes to terms with tax reform

The Maldives is coming to terms with a reformed tax system, following the introduction of a General Goods and Services tax this week.

Finance Minister Ahmed Inaz said the new system, which has raised the eyebrows of businesses, consumers and politicians alike, is a natural consequence of recent political changes and requires everyone’s support to function sufficiently.

“I think anybody could see that after the 2005 democratic reform, costs increased. These costs had to be met by additional revenue, but they weren’t,” he said.

Currently, the Maldives’ has a state deficit of Rf1.3 billion (US$85 million). Since democratisation, the Maldivian government has surpassed other national governments’ employment rates by employing 10 percent of the national work force. One third of government spending goes to state employees, and nearly half of the 2011 budget was spent on salaries and allowances.

The Goods and Services Tax (GST), which became operative on October 2, has raised a 3.5 percent tax on certain items. Contrary to an earlier tax which was paid for at the point of import and effectively invisible to the customer, the GST requires most businesses to charge an additional 3.5 percent directly to the customer at point of sale.

Certain items are tax exempt, a detail which has allegedly made it difficult to implement at stores selling a variety of products.

Inaz is optimistic that new tax reform system will cut costs and improve business operations. He said many businesses are compliant with the new measures, and are trying “their level best to be sure that this happens.”

“Business owners will have to crunch the numbers, and that will show them more about what is happening in their businesses. They will be able to better see how things operate.”

The GST is part of a larger tax reform system described in “a package of policy reforms that will help stabilise and strengthen the Maldives’ economy” agreed to by the Maldives and the International Monetary Fund (IMF) in May.

The policy reforms include raising the Tourism Goods and Services Tax (TGST) from 3.5 percent to 6 percent from January 2012, and to 10 percent in January 2013. Tourism is one of the Maldives’ leading economic contributors.

Inaz stressed that the tax was a step towards self-sufficiency for the Maldives.

“The international community will not give us the money required to balance our deficit, it is us who have to raise that money and that’s everyone’s responsibility. We have to make sure we can stand on our own feet.”

Meanwhile, opposition party Dhivehi Rayyithunge (DRP) has expressed concern over the tax. After supporting its initial pass through Parliament, DRP released a booklet titled “DRP’s response to the government’s economic nuisance package.” The booklet said businesses were not sufficiently prepared for the transition, and requested a six month delay.

Noting “administrative confusion” and the country’s heavy reliance on imports, the DRP also suggested levying a customs duty at the entry point to the country as a more effective means of raising revenue.

“We believe the GST is a regressive expense. The government doesn’t have the infrastructure to support it, implementation of GST means it will have hire a lot of people.”

DRP Spokesperson Ibrahim ‘Mavota’ Shareef said today that the tax system had not been implemented prematurely, but that it would only benefit large businesses while harming smaller ones.

“The government is doing the opposite of what it preaches,” he said. “Our main problem with the bill is that the government has decreased the tax burden on the very rich, especially in the tourism sector. We want to see the current tax system overhauled and replaced with a modern one.”

Shareef said DRP supports other progressive taxes, and was in favor of the recently announced plan to decrease import duties starting in January 2012.

President Mohamed Nasheed yesterday said a policy to reduce import duties would bring prices down starting early next year.

The President’s Office Press Secretary Mohamed Zuhair told Minivan News that the waiving of certain import duties would be significant.

“Once the new tax system is fully operating, all will fall into place. Prices will drop to even lower than originally,” Zuhair said.

A bill to finalise the tax system is currently before the Majlis, and is expected to take another two or three months to be properly processed.

During the President’s tour of retail, grocery, and supermarket stores on October 3, Zuhair said that operations were “running smoothly”.

“The only issue was that many businesses had a shortage of coins. Maldivians have a habit of rounding up to avoid coin transfers, but in a successful economy coins are important. Maldives Inland Revenue Authority (MIRA) has been doing a commendatory job in distributing coins, and the Maldives Monetary Authority (MMA) foresaw the issue and has a distribution system in place,” he said.

When asked about the DRP’s opposition to the GST, Zuhair alleged that the party’s motives were political.

“They made their case to the President, but the President was advised by his advisors and economic experts that a taxation system needed to be implemented,” said Zuhair.

“It is true that the very rich have not been taxed appropriately as per their earnings,” he acknowledged. “Once the tax system is fully in place, things should stabilise.”

Shareef did not accept that there were political motivations behind the DRP’s objections. “It’s an economic and social issue, concerning the distribution of wealth,” he said.

Inaz did not wish to comment on the matter. “This is an economic issue,” he said.

State Minister for Finance Ahmed Assad previously observed that even with the new taxes proposed by the government, the Maldives still had the most generous tax system in the region – even compared with other island nations, and neighbouring countries such as India and Sri Lanka.

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Government plan to waive import duties, reduce costs

President Mohamed Nasheed has said the prices of goods will drop after the government implements a plan to waive import duties on certain products, starting January 2012.

Yesterday, Nasheed paid visits to several Male’ shops to observe the impact of the Goods and Services Tax (GST), which went into effect on Sunday, October 2.

Several shop owners said they had noticed several difficulties from the start of the GST, but that Maldives Inland Revenue Authority (MIRA) was taking necessary actions to resolve these issues.

Others noted that the majority of businesses had been well prepared for the new tax system.

The tax system was applied to the Maldives as a means of increasing state income, which in turn is expected to support the growth and development of national public services such as social security, public welfare, and health coverage.

Nasheed said a more efficient tax administration system would be established once legal formalities are completed.

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