Tag: GST

Locals complain of being charged tourism GST

To celebrate her son’s eighth birthday, Aishath Niyasha* decided to take him and his friends to the swimming pool at Hulhule Island Hotel.

On arrival she was asked to provide a copy of her ID and told that it was a new rule of the hotel. As the kids splashed around in the pool, Niyasha ordered some juice and asked the waiter to bring her the bill for the usage of the pool as well as for the drinks.

Surprised to see Goods and Services Tax (GST) included in both bills, Niyasha told the cashier that since she was a Maldivian she should be exempt from it. His reply albeit in a joking manner was “talk to the esteemed parliamentary members, they are making us do this.”

Scenes like this are played all over the country as confusion has risen between local customers and service providers since the implementation of Tourism GST of 3.5 percent at the start of this year.

Maldivians and work permit holders voice their right to be exempt from GST, which by law is only applicable to holders of a tourist visa, while some service providers charge GST to all their customers.

Confusion

David Jones*, who has lived in Maldives for over 10 years and holds a work permit, says he is frequently asked to pay GST.

“Showing them my work permit and saying a bit forcefully that I am not obliged to pay GST works most of the time.”

He says it’s just a matter of principal, as the amount of GST at 3.5 percent is very low. He finds that most of the time the management, and the supervisory level staff in resorts and hotels are well informed and aware of how it should work. “Though seems in a lot of places the junior level staff are not well briefed.”

HIH duty manager Shafeeg says the hotel’s policy is “when a copy of the ID is provided, the client would not be charged GST.” Shafeeg says that all the staff at HIH have been informed and expressed surprise when informed of Niyasha’s poolside incident. He pointed out that HIH has a notice plastered near the cashier asking clients who are eligible to be exempt from GST to give a copy of their IDs.

Likewise Bandos Island Resort and Spa, one of the oldest resorts in Maldives, and one that is frequented by both tourists, locals and a large number of expatriates, says it follows the law to the letter.

“We do exactly as the law requires us to do, we only charge tourists GST” says Thoha Ali, Sales Manager of Bandos. “All the concerned staff has been briefed.”

Ali admits when GST was first introduced there was confusion. “We outsource our system, so it’s a ready-made programmed for billing; hence it took a while to modify it to suit the requirements.”
Niyasha, who ended up paying the GST, says she would be less bothered if she could be sure that the amount she paid is handed over to Maldives Inland Revenue Authority (MIRA) and not pocketed by the hotel.

Informing MIRA

“MIRA will audit all the establishments from time to time,” says Fathimath Rasheeda, director Tax Payer education and Facilitation at MIRA, to ensure that nobody can take advantage of the system. Since the implementation of GST at the start of the year, MIRA had collected US$7.2 million in January and US$6.6 million in February.

“We did get a lot of complaints from Maldivians, especially at the onset of the GST implementation” says Rasheeda. To counter this problem MIRA issued a notice in January informing all Maldivians and work permit holders not to pay GST, and to inform them of any establishment that does so.

“Unless the public informs us we will not be aware of which establishments charges non-tourists, as it would be impossible to tell from the bill who the customer is.”

Hotels in turn have complained to MIRA that customers at times do not provide the paper work that would make them exempt from paying GST. Rasheeda says “MIRA require documented proof, so it’s always better if an ID or work permit card is provided.”

This in turn leads to the question, who will do the photocopying? Some hotels and service providers seem to find it a time-consuming bother to check the ID of clients and to make exemptions for clients not to pay GST.

While some hotels complain that photocopying IDs and work permits is an unnecessary expanse, HIH staff told Niyasha “we will photocopy your ID just this once, but make sure you bring a copy with you next time.”

So it appears that the onus is on the clients to carry around photocopies of their IDs or work permits if they want to be exempt from paying GST. Given the high price of photocopying in Male’, it might be just cheaper to pay the 3.5%.

*Names changed on request.

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US$5.5 million in GST collected so far: revenue authority

The Maldives Inland Revenue Authority (MIRA) has told newspaper Miadhu that it has collected US$5.5 million in Tourism Goods and Services Tax following its introduction at the start of the year.

MIRA Director Fathmath Rasheeda told Miadhu that 85 percent of tourist business had still yet to pay the T-GST.

According to MIRA, 1277 tourist businesses run by 805 parties are required to pay the new T-GST.

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Mid-market appeal amongst 2011 tourism challenges

As a growing number of Asian markets like India begin flocking to the Maldives for their holiday escapes, the country’s tourism minister believes the government’s goal of providing more middle-market beds to “compliment” premium resort properties will boost the industry in the long run.

As the country continues to look at potential revamps for how it markets itself in the tourism market, Dr Mariyam Zulfa, Minister for Tourism, Arts and Culture, told Minivan News that the Maldives risked being seen as a destination with “too many” premium beds.

However, Zulfa said that in looking to diversify towards more mid-market tourism, the issue of replacing the country’s current “Sunny Side of Life” ad slogan remained under industry consultation – including over whether it should be changed at all.

Zulfa’s comments were made as new findings published by the Pacific Asia Travel Association (PATA) and the Nielsen Company found the Maldives was among several destinations like China, Indonesia and Bangladesh to be attracting increasing interest from Indian travellers.

“The diversification in destinations indicates a greater sense of adventurism and discovery that should be heartening for tourism as a whole, and a clear symptom of a confident Indian consumer mimicking their country’s confidence and prominence,” Neilson Company Executive Director Surekha Poddar stated in the report.

“The Indian traveller is set to become a prized possession as potential spending power and disposition to travel to new countries increases.”

Zulfa said that with income levels in nations like China and India growing in general on a daily basis, the Maldives was beginning to see “exponential growth” in the number of visitors from both of these markets.

“The government has introduced a mid-market policy focusing on three to four star resorts,” she said. “These are being introduced to complement the premium beds we have here.”

Although not willing to speculate if these tourism developments were directly related, Zulfa said that more middle market properties was seen as a move that would be cater to a changing customer demographic.

“Premium beds alone are not suitable for visitors from the South of Asia. We need to look at how to reach out to them,” she said. “These tourists have very different vacation habits to more established markets like Europe.”

Slogan talks

Zulfa claimed that opinion was currently divided on the direction to take on marketing the Maldives to travellers around the world, particularly the merits of changing “the sunny side of life” slogan – one that has been in service for eleven years.

“We will be having informal discussions whilst we will be at the Internationale Tourismus Börse (ITB) – a tourism trade show being held between March 9-13 in Berlin,” she said. “Right now, we have two levels of feedback, one of which is that it [still] works.”

Zulfa added that if a decision was taken to keep the slogan, it would perhaps need to be reintegrated or redesigned with a “more modern” aesthetic.

“There is another reasoning that suggests that although the wording is OK, it is too general,” she said. “The slogan is now 11 years old and perhaps to fill the premium beds we have, a new slogan may be needed to reinvigorate the market. This will be discussed during consultations at the ITB.”

Zulfa said that work was nonetheless continuing on a Maldivian marketing strategy despite uncertainty on the final product.

Mohamed ‘Sim’ Ibrahim, Secretary General of the Maldives Association of Tourism Industry (MATI), said that MATI did not itself have an opinion on the final outcome of any possible slogan revamp. However, Ibrahim said that MATI hoped to see greater study and research into what the industry itself would prefer to see in terms of branding and marketing.

“We don’t think enough is being done, [in terms of studying the slogan issue],” he said. “We would like to see more cooperation from resorts, airlines, travel companies and other major stakeholders in the Maldives tourism industry.”

From the outset, 2011 is proving to be a year of change for Maldivian tourism, with the implementation of Tourism Goods and Services Tax (GST) on January 1 that placed an additional charge of 3.5 percent on a host of services supplied by the travel industry.

Mohamed said that although he believed that adoption of the GST among service operators had gone “smoothly”, MATI held “serious issues” with the tax related to payments and other technical issues.

The MATI secretary general said he was unable to provide more details about the concerns at present, but added that the association was looking to hold a meeting with resort chains over the issues.

Zulfa claimed that the implementation of the GST had so far gone well for the industry, with no major complaints received concerning the charges.

“Most operators in the tourism industry agree that the 3.5 percent GST is a very reasonable amount to pay,” she said.

“This is a way that more people can equitably benefit from tourism.”

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Government’s bill reduces tourism revenue “but improves investor confidence”

The government has proposed an amendment to the Tourism Act that reduces the rent resorts pay as well as extending the lease period to fifty years, a move which would significantly reduce the government’s income from the tourism industry in the short term.

The bill was proposed by MDP MP Ibrahim Mohamed Solih, who said the main aim of the bill “is to improve investor confidence and performance of the tourism sector.”

Solih said rent would be charged depending on the resort’s area and not number of beds. Resorts are now to pay US$7 for each square metre.

Resorts would also be categorised according to their size; the smallest group being from 100,000-200,000 m²; the second from 200.000-400,000 m², and the largest is above 400,000 m².

Solih said this will ease the burden on resort owners and will help resorts currently under construction around the country.

He noted that this would reduce the government’s income from the tourism sector from Rf 1900 million (US$148 million) to about Rf 1300 million (US$101 million).

Creating an investor-friendly environment

Minister of Tourism, Arts and Culture, Dr Ali Sawad, said the amendments to the Tourism Act will create more macro-economic opportunities in the Maldives.

“It is geared towards achieving three objectives: the first is transforming leases to land rent. The second is phasing out the bed tax, and the third is increasing the lease from a minimum of 35 years to a minimum of 50 years.”

Resorts currently pay a flat rate of US$8 per occupied room, per night, known as the ‘bed tax’, however the resort industry has criticised this as a disincentive to increase capacity and promote expansion, and limited potential revenues in the future.

Dr Sawad said since all the revenue streams are linked, any amendments to the bill will have a “ripple effect on the economy” and would create an environment for greater investments as investment costs are decreased.

He assured that the amendments would bring in more revenue starting from next year, but admitted the government would see “a slight drop [of revenue] during the transition. It’s all part of a larger fiscal policy.”

The amendments to the bill would ultimately “not lower revenue” from the tourism industry, as they were intended to make investment in the Maldives “more attractive.”

Former Minister of Tourism Abdulla Mausoom said “we definitely have to create a positive investment environment in the country,” because in the last year and a half, “investor confidence has been down.”

He said the outcome of both the tourism bill and the taxation bill “are not certain.”

“The Maldives is very small and our natural resources are limited,” Mausoon said. “The government has a responsibility to look after our resources.”

He said he believed “it is not in the best interest of the country” when an investor is willing to pay a better price and the government had set a lower fixed price.

“We should facilitate and investor-friendly environment without eliminating the competitiveness of the market,” he said.

Mausoon suggested the government set a minimum fixed rate and have bidders propose higher bids from there. He said most of islands desired by resorts were what he termed, “micro-islands” or those less than 10 hectares in size (less than 0.1 km²).

“The government has a responsibility to safeguard our assets,” Mausoon said, noting that if investors are willing to pay more, “they should be allowed to pay more.”

‘Sim’ Mohamed Ibrahim from the Maldives Association of Tourism Industry (MATI) said “we think this a very forward-thinking bill. Obviously there are little tweaks needed, but overall it’s a good bill that has come at the right time.”

Sim said “the government has worked closely with the tourism industry to develop this bill” and had consulted with the industry “at every stage.”

Bed tax and island lease vs. GST and land rent

Currently, the cost a resort pays the government is based on the number of beds it has. Dr Sawad said on average, the government was making anywhere from US$3,500-20,000 per bed every year, generating a total of US$47 million in revenue from the bed tax per year.

He said a “conservative estimate” of how much revenue the government’s proposed Goods and Services Tax (GST) is expected to bring in was over US$60 million a year. He noted that the tax revenue would continue to increase as the tax net widens.

Dr Sawad said the bed tax would be phased out in the next three years when the GST is in place.

He also said the leases for resorts currently brought in around US$78 million, while the land rent should collect about US$60 million a year.

“By addressing the lease rent head on, we will be able to reduce investment costs, which makes for a more attractive investment,” he said.

However Mausoom said the land rent increases the uncertainty for the tourism industry, because there is no guarantee as to how many beds will be developed on then land: “A resort owner can build as many rooms as possible.”

“This US$7 per square metre is very misleading,” he added, noting that “the government will only be getting three set rents: US$1 million [per month] for the islands in the smallest bracket. For the middle bracket it will be US$1.5 million, and US$2 million for the larger islands. It doesn’t make sense.”

He pointed out the smallest bracket—those islands smaller than 200,000 m²—“should catch at least US$1.4 million, if you multiply it by US$7 per square metre. It’s totally misleading.”

Another thing he believes is unfair is the government’s decision to wait until the GST is in place before ratifying the Tourism Act. “They can’t put a condition like that,” he said, “it’s putting an extra burden on resort owners.”

Mausoom also said he believed there were “many discrepancies” in how the MDP is trying to consolidate the different bills and acts concerning fiscal policy, and said “the government has to start singing the same song. A song that is nice to the Maldivian people, nice to the investors, and nice to the tourists.

Sim explained that the amount the government will lose in land rent (compared to the current lease and bed tax scheme) would be offset by the GST levy, “which would go hand-in-hand with this bill.”

He said adding the business profit tax, GST and land rent, the resorts will “probably pay more than they do currently alongside existing government revenues from customs duties.”

He added that the three year waiting period to phase out the bed tax “is a bit long and [we] will try to lobby for one year.”

Sim also noted that the major issue with the Maldives’ tourism industry is capacity: “The industry can only grow through an increase in capacity. The current situation is good for people who have established, successful properties, [but not for new investors].”

The new system, he said, would offer businesses “certainties” and reduce the current level of “maneuvering” occurring within the industry.

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