Maldives Inland Revenue Authority (MIRA) has made its upcoming Goods and Services Tax (GST) regulation available for public opinion.
The regulation goes into effect on October 2. It will open for public opinion on the MIRA website until Wednesday evening, Haveeru reports.
The regulation was made according to suggestions from the business community, and includes procedures on levying the goods and services tax.
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(0)Main opposition Dhivehi Rayyithunge Party (DRP) Leader Ahmed Thasmeen Ali has sent a letter to the President requesting a six-month delay to the introduction of a 3.5 percent Goods and Services Tax (GST) approved by parliament last month.
In his letter, the minority leader noted that according to parliamentary rules of procedure, only the government could submit tax legislation. He urged the government to delay the implementation of the GST to allow businesses enough time to prepare. The General GST is due to come into force on October 2.
Thasmeen argued that a number of citizens could be subject to legal penalties specified in the legislation if they were not provided sufficient information about registering and paying the new direct tax.
In a booklet handed out to media last month titled “DRP’s response to the government’s economic nuisance package,” the party noted that the General GST would affect small businesses such as cornershops, cafes and teashops.
The businesses 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 argued that levying a customs duty at the entry point to the country was more effective.
President’s Press Secretary Mohamed Zuhair told Minivan News today that the government viewed the DRP as the main opposition party and “gives a high priority to their concerns.”
“But the President has been advised by financial experts that all taxes should be part of one network and it is not sensible to omit one tax for the whole system to work,” he said.
Zuhair noted that “people wanted to delay the introduction of political parties” in the past, adding that “we have lost 30 years without a tax system.”
In May, the International Monetary Fund (IMF) approved a three-year support programme after the government agreed to “a package of policy reforms that will help stabilise and strengthen the Maldives’ economy.”
Under the IMF programme, the government committed to:
(0)Dislikes(0)The Maldives Inland Revenue Authority (MIRA) has invited Goods and Services Tax (GST) payers to register with the authority before September 30.
The GST bill passed last month comes into force on October 2 following its ratification by President Mohamed Nasheed on September 2.
Businesses that offer goods and services worth over Rf1 million over the course of a year would have to register to pay the GST.
Registration forms are available from the MIRA website.
(0)Dislikes(0)Maldives Inland Revenue Authority (MIRA) has said it will give priority to levy the Goods and Services Tax (GST) from merchants who import and sell goods at wholesale prices, reports Haveeru.
The GST bill, which was ratified by President Mohamed Nasheed last Friday, is required to be implemented within a month from ratification.
Commissioner General of Taxation, Yazeed Mohamed, told Haveeru that tax deductions from wholesalers will be the second major source of income. He said certain industries such as construction, food and entertainment would be given higher priority.
Yazeed said the act will be fully implemented in three months, but that administrative tax regulations had to be amended as well, Haveeru reported.
GST payers will be asked to register at MIRA.
(0)Dislikes(0)President Mohamed Nasheed has ratified the “Goods and Services Tax Bill” (GST), which was passed at Parliament’s 34th meeting of the term last Monday. The President signed the bill into law at a function on Fuvahmulah today.
The GST bill was published today in the government’s gazette.
The tax bill is divided by type of sale. Sales are defined as either tourism goods and services, or goods and services for sectors other than tourism.
The points addressed by the GST bill include collection, exemptions, duration of taxation, methods of calculation, and registration of taxable activities.
(0)Dislikes(0)Parliament will vote on Monday whether to introduce one of the government’s four key pieces of tax legislation that it has promised the International Monetary Fund (IMF) will help the country claw its way out of a crippling budget deficit.
The combined goods and services tax (GST) bill contains a general GST of 5 percent, and an increase to the existing tourism GST (TGST) from 3.5 percent to 6 percent.
Parliament voted on July 18 to send to committee four bills of the government’s economic reform package: the GST bill, an income tax, a corporate profit tax and a bill governing excise and reduction of import duties.
At the time all four bills received more than 50 votes apiece from the 72 MPs present and voting, hinting at broad cross-party acceptance of the need for taxation. Of the 72 MPs acting as a committee, 51 voted approval of the bill with the proposed amendments.
To expedite the process, an 11-member sub-committee was chosen to review the bills with five MPs of the ruling Maldivian Democratic Party (MDP), three MPs of the opposition Dhivehi Rayyithunge Party (DRP), Jumhooree Party (JP) Leader Gasim Ibrahim, one MP of the minority opposition People’s Alliance (PA) and Dhuvafaru MP Mohamed Zubair as an Independent MP.
On Monday, parliament will vote whether to finally pass the GST bill when it is presented to the chamber.
Most of the many amendments proposed to the bill by the committee are administrative, but several concern additional commodities to be exempted from GST, including petrol, diesel, cooking gas, telecoms and adult diapers.
The amendments also replace the government’s proposed start date of October 1 to within a month of whenever the legislation is published in the government’s gazette (following presidential ratification).
Following consultations with the opposition and the apparent support of 51 members for the bill, the Dhivehi Rayithunge Party (DRP) issued a pamphlet declaring it no longer supported the bill.
“They already essentially voted to support it, but now the DRP are bringing out statements and newspapers interviews saying don’t support it, and they have issued a whip line for the party not to support it [in the vote tomorrow],” said a source in the President’s Office.
The source said the government was also hoping the amendments to the Export-Import Act of 1979 would also be passed, as the GST was intended to replace it and crossover would see the same commodities being taxed twice.
At its press conference today, the DRP handed out a booklet titled “DRP’s response to the government’s fiscal and economic nuisance” with seven main points against the economic reform package.
The DRP objected to a projected growth of Rf1 billion in the budget for 2013 and expressed concern with expenditure out of the budget reaching 66 percent of GDP in 2009 – compared to 32 percent in Seychelles and 21.6 percent in Mauritius – claiming that the purpose of the new taxes was to “find money to influence the public for the 2013 [presidential] election.”
On the second point, the DRP notes that the 27 unemployment rate “proudly announced by the President” meant that 1 out of 4 people were unemployed, advocating diversification of industries to increase productivity. The DRP observed that the government’s policy for controlling inflation and spurring job growth was vague and unclear.
Thirdly, the DRP would oppose the introduction of a personal income tax on the grounds that the country’s unique geography, limited natural and human resources, and high cost for investments in the country did not make a direct tax advisable in the current economic climate.
While the government proposed that only those who earn above Rf30,000 would have to pay the tax, the DRP noted that all citizens would have to file tax returns.
“The charts of the government’s fiscal and economic nuisance package show Rf300 million will be received in 2012 from income taxes and 475 million in 2013,” it reads. “Instead of making all citizens file tax returns in order to earn 475 million two years after taxes are introduced, it would be far better to reduce the government’s useless expenditure by that amount.”
It adds that administrative costs for collecting income taxes from Maldivians living abroad would be disproportionate to the returns.
As its fourth point, the 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 and 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.
The DRP is also against abolishing the Foreign Investment Act as it would remove protectionist restrictions, urging instead “amendments to the law to pave the way for foreign parties to invest in the Maldives and conduct businesses”.
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.”
Proposed amendments to the Immigration Act was meanwhile intended to “provide an opportunity for MDP’s friends to settle in the country and establish a foothold.”
Offering residential visas, it continues, would worsen unemployment and crop up “more challenges” for Maldivian professional workers.
On its final point, the DRP claims that the fiscal responsibility bill was “a scheme” to negate parliament’s amendments to the Public Finance Act and “reclaim the fiscal discretion offered to councils in the Decentralisation Act”.
In prior meetings with the government, the President’s Office source told Minivan News that “we agreed that state expenditure needed to be lowered, something the IMF was also asking for, but they mentioned none of these [other] things. We’re keeping our side of the bargain, but it’s hard to reach an agreement with them when they keep changing their minds.”
Unless the bills are passed before parliament goes for a month’s recess on Tuesday, the government may miss its commitments made to the International Monetary Fund (IMF) on announcing the economic reforms package. These included:
At the announcement of the economic reform package, Governor of the Maldives Monetary Authority (MMA) Fazeel Najeeb acknowledged that “there will be some eyebrows raised and some reservations on the measures – this is inevitable in any country changing its taxation regime.”
“There are instabilities and I hope these will be short term. But I think what we are doing is in the interest of the economy and will bring it out of the mess it is in. I think it is necessary that we act together now,” Najeeb said.
The IMF package, he noted, represented “a joint commitment by the Ministry of Finance and the central bank: a state affair in the interests of the economy and the country. Everybody in the country realises and recognises that there needs to be a change in the status quo. The status quo is a fiscal stance that is unmanageable.”
Asked whether he felt the new taxes were likely to be passed by parliament, “I think when it comes down to the details of what and how the legislation takes shape, that should be left to Majlis. What I can say is that status quo needs to change, and I don’t think this can be only reduction [in expenditure]. There needs to be a considerable amount of income increase. A combination of revenue as well as expenditure.”
Last week, at a launching ceremony for the “Fiscal and Economic Reform Programme,” Mohamed Umar Manik, chairman of the Maldives Association of the Tourism Industry (MATI), observed that a sustainable source of government revenue was necessary for providing public goods and services.
“Today we have democracy in our country, but democracy can only be strengthened if we are able to deliver,” said the Chairman of Universal Enterprises. “To do this, our government must have sources of income. A detailed reform agenda has been proposed for this. In my view, it is an ideal reform programme.”
Sunland Travels Director Hussain Hilmy stated that the Maldives’ “economic policy and legal framework needs to undergo modernisation and reform.”
“We in the business community welcome the bold initiative being undertaken to carry out a programme of comprehensive economic and fiscal reform,” Hilmy said.
He added that businesses were “delighted” with the government’s policy of a “shift away from import duties as a major source of government revenue.”
Meanwhile, speaking to Raajje TV last night, Finance Minister Ahmed Inaz said that the proposed tax system should have been in place 10 years ago, and that any further delay was unnecessary.
Inaz said the additional revenue was needed to pay civil servant salaries, and provide services such as water, power, independent institutions, sewerage, hospitals, schools “and the salaries of Majlis members and their committee allowances.”
(0)Dislikes(0)The Maldives has significantly underestimated the value of tourism to the local economy by over a billion dollars, according to a report by economics lecturer and Assistant Manger of the Maldives Monetary Authority (MMA)’s Monetary policy and Research Division, Ibrahim Ameer.
In the first month following the introduction of 3.5 percent Tourism Goods and Services Tax on the tourism sector, the Maldives Inland Revenue Authority (MIRA) collected US$7.2 million from 800 of the 871 registered tax payers.
“This means the whole tourism industry’s revenue (market value) would amount to approximately US$210.0 million for the month of January and approximately US$2.5 billion for the whole year,” observes Ameer.
In comparison, the government’s official figure for the total market value of all goods and services produced in the country – not just tourism – is US$1.5 billion.
In his report, Ameer recalculates the budget deficit based on updated GDP figures and concludes that the deficit sits at nine percent, “as opposed to 17 percent of GDP in 2010 as per government authorities.”
“I suspect these underestimated figures are used by the authorities to prolong the preferential treatment Maldives has and in some cases continues to receive as a [former] Least Developed Country (LDC),” Ameer surmises, suggesting that “ our country’s problems are primarily a case of the state’s inability to collect revenue through taxation rather than a budget deficit.”
“It should be agreed that as the country marches towards full democratization, with new independent statutory institutions, local and atoll councils and increased civil service salaries, the country needs to rethink it tax policy,” Ameer states.
In an agreement reached with the International Monetary Fund (IMF) last week, the Maldives has committed to:
Comparison figures Ameer provides for corporate, income and GST/VAT tax regimes regionally and around the world, show the proposed figures for the Maldives are substantially lower.
India, for example, has a 25 percent business profit tax (BPT), individual income taxes of 0-30 percent, and a GST of up to 12.5 percent. Pakistan has a 35 percent BPT, 7.5-35 percent income tax and a GST of 17 percent. Barbados, another tropical island tourism destination, collects a BPT of 25 percent, income tax of 25-25 percent and a GST of 15 percent.
In his conclusion, Ameer argues against substantial cuts of the Rf12 billion state budget, noting the impossibility of reducing that to match the government’s present RF7 billion in revenue, and presses for the careful introduction of taxation.
“We could save some expenditure through cutting waste, prioritising projects and eliminating corruption. On the other hand, we must all agree that in certain areas wage and salaries given are very low compared to many countries,” he suggests.
As a result, “it is difficult to retain skilled and highly educated people in the country. This is why we see so many bright Maldivians leaving the country to work abroad. In the education sector, where the future of the country is molded and where the bright and the best are needed to teach future generations, the remuneration is pathetically low. The average wage for leading teacher with a Master’s degree is Rf 8354 (US$540).”
“The academic and education sector should be highly competitive and more rewarding if we are to build a better future and save ourselves from the sort of ‘brain-drain’ that we cannot afford. The situation is more or less the same with the healthcare sector of this country, with many of the brightest doctors and nurses opting for work abroad in countries as diverse as New Zealand and Canada,” Ameer observes.
He notes that the disproportionately high rents in Male’ swallowed 70-80 percent of the income of many residents in the city, “and as a result, disposable income is lower than it should be to encourage a more competitive market place and economy.”
“Because only Male’ is equipped with all the necessary facilities, like education and health care, more than one third of the population is living here. This creates irreparable social and economic damage,” Ameer claims.
Much of the visible development in Male’ he claims is the a result of a “coffee-shop bubble, a smokescreen that is bound to burst dragging the economy into depression.”
“To achieve sustainable development we need to see past supermarkets, boutiques and coffee shops in every corner,” he suggests.
“The wealthy need to realize that it is more lucrative to have businesses that decline, over our dependence on imports. The present business model increases imports and puts more pressure on the foreign exchange. It only widens the disparity between the rich and the poor when there is a negative impact on the economy.”
(0)Dislikes(0)President Mohamed Nasheed has pledged further economic reforms including the planned implementation of a general business profit tax in July and the possible increase of the Tourism Goods and Services Tax (GST) from six percent to 3.5 percent.
Speaking yesterday during his weekly radio address, the president claimed that serious reorganisation of state finances was needed as the Maldives graduates from the UN’s list of nations with Least Developed Country status.
This reorganization strategy includes a managed float of the rufiyaa to effectively devalue the currency against the US dollar . The move was designed to try and allow the local currency to be traded within 20 percent of the pegged rate of Rf12.85 – a decision that has led to ongoing protests in Male’, said by organisers to be focused on escalating living costs.
“Reducing public expenditure and increasing state revenue to reduce budget deficit; stopping money printing to prevent devaluation of currency due to increased supply; and corporatising government services to increase participation of efficient private parties,” were outlined by the president as the government’s key aims for the economy.
In order to meet these goals, Nasheed claimed that the government would look to begin collecting business profit tax from the private sector on July 18 as well as trying to impose a minimum wage for local people.
In addition, the president also claimed that he was considering increasing the Tourism Goods and Services Tax, which was first implemented as of January 1 this year, to six percent from the introductory rate of 3.5 percent.
Criticising national spending policies under former President Maumoon Abdul Gayoom, Nasheed claimed that his government had reduced a budget deficit that stood at about 30 percent of the nation’s GDP back in 2008 to just above 10 percent at present.
While generally supporting initiatives to reduce costs that have led to ongoing public protests in the country, the Treasurer of The Maldives National Chamber of Commerce and Industry (MNCCI), Ahmed Adheeb Abdul Gafoor, said that the the planned addition of a minimum wage and a Goods and Services Tax (GST) on all enterprises operating in the country needed to be gradually implemented.
Speaking earlier this month, Abdul Gafoor claimed that gradual introduction of taxes would be vital to ensure the nation’s fledgling economy can cope with any potential changes.
(0)Dislikes(0)The country’s Economic Development Minister has called for a greater focus on introducing new “direct revenue” streams like taxation to the country to try and balance national income even as the government reports an increase in income.
Mahmood Razee said he believed that increased government earnings between January and March 2011 should be seen as an encouraging development in the country for both public and private finance, with initiatives like the tourism Goods and Services Tax (GST) introduced in January expected to be rolled out across other national industries.
However, he stressed that more cash generating measures would be needed by the state to balance the country’s books.
The claims were made as the Maldives Inland Revenue Authority (MIRA) recorded a 59 percent increase in government first quarter income on the back of new initiatives like the tourism GST.
The Maldives has come under huge pressure in recent years from financial institutions like the International Monetary Fund (IMF) to try and reduce extensive state spending, resulting in a large deficit between income and expenditure that the government’s Finance Ministry have claimed to be trying to address.
While preliminary figures had pegged the 2010 fiscal deficit at 17.75 percent, “financing information points to a deficit of around 20-21 percent of GDP”, down from 29 percent in 2009, the IMF has reported.
Razee claimed that the increases in government income was a step towards more balanced expenditure as the MIRA revealed that Rf947m was generated during the first quarter of 2011. These earnings were up by 21 percent on predicted incomes for the year and 59 percent over revenues taken during the same period in 2010. However, earnings from the tourism GST introduced from January 2011 onwards were not in place back in 2010.
Tax revenue over the quarter rose by 81 percent, aided mainly by the tourism GST, which generated an estimated Rf351m in February and March alone, up one percent on expected earnings, according to the MIRA.
Of these tax earnings, the financial report stated that Rf82m had been collected in the local currency, while the remaining Rf864m was collected in US dollars (US$67m).
The MIRA report added that government earnings from initiatives such as the switch of a tourism lease rent to a tourism land rent had seen non-tax revenue increase by 46 percent over the period, despite a 28 percent decline in royalties after recent amendments to the Fisheries Sector.
“With the change from tourism lease rent to tourism land rent, the revenue from [this amendment] has increased by 7 percent,” the report stated. “Additional revenue of Rf 146m has been received during this quarter from Resort Lease Period Extension following to the second amendment made to the Tourism Act.”
More Work
According to Razee, despite the increased revenue, more sources of income, particularly in terms of foreign currency, were needed to offset budgetary concerns. This apparent need comes in light of a lack of US dollars being made available through Maldivian banks that this month saw a long standing Rf12.85 peg on the exchange rate controversially being amended within 20 percent above or below the figure.
“The solution is to look to more direct forms of revenue like the general GST, though there is still some way to go with work in trying to balance revenue with the expenditure side,” he said. “Additionally, when we look to taking [state] loans they will need to be able to build greater productivity and more investment into the economy.”
With the Finance Ministry aiming to introduce a general GST system beyond services and goods provided to holidaymakers, Razee believed that government’s recent experience with taxing tourism income had helped bring a much great understanding of the true state of the country’s finances.
“Obviously with the GST in place, we understand much better the exact tourism receipts being generated,” he said. “Without them, it was much harder to fully understand the revenues being generated.
Razee claimed that the implementation of the general GST tax would also require the private sector to be more “professional” in their accounting, in theory ensuring wider industry benefits in the long-term.
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