Parliament approves import duty hikes

Parliament has approved amendments to the Import-Export Act to raise import duties on a range of goods as part of the current administration’s revenue raising measures.

The amendment bill submitted on behalf of the government by MP Mohamed Rafeeq Hassan was passed with 34 votes in favour and 19 against at yesterday’s sitting of the People’s Majlis.

Once the amendments (Dhivehi) are ratified by the president, a 15 percent tariff will be reintroduced for construction material, articles of apparel and clothing accessories, silk, wool, woven fabrics, cotton, man-made filaments, wadding, special yarns, twine, cordage, ropes, cables, carpets and other textile floor coverings, lace, tapestries, trimmings and embroidery.

Tariffs will also increased from the current zero percent to five percent for sugar confectioneries and diesel motor oil and raised from 10 to 15 percent for organic chemicals and compounds of precious metals, rare-earth metals, radioactive elements or isotopes.

Custom duties for vehicle seat covers will be raised from 35 percent to 75 percent.

While custom duties for organic and chemical fertilisers and pesticides as well as for live chickens, ducks, turkey, quail, and chicks will be eliminated, duties for polythene bags and items that contain hydrochlorofluorocarbons (HCFCs) will be hiked to 400 percent and 200 percent respectively.

The tariff hikes reverses changes brought to the law when import duties for most items were eliminated in late 2011 by the administration of former President Mohamed Nasheed ahead of the introduction of a Goods and Services Tax (GST).

Import duty was also eliminated for food items – with a few exceptions such as bananas, mangoes, watermelons, and papaya to protect the local agriculture industry – as well as for construction material, fabrics and garments, paper and books, environment friendly goods, paints, floor coverings, footwear, steel, medicine, medicinal machineries and products, fertilisers, electric vehicles, cosmetic goods and domestic appliances.

During yesterday’s final debate on the government-sponsored amendments, MPs of the opposition Maldivian Democratic Party severely criticised the indirect tax hikes, contending that the burden of increased prices of goods would be borne by ordinary citizens.

In a press statement yesterday, newly-appointed Maldives Monetary Authority Governor Dr Azeema Adam predicted a rise in the inflation rate as a result of hiking tariffs.

The central bank previously estimated the inflation rate to hold steady at four percent as global commodity prices were expected to decline this year.

The Maldives Customs Service meanwhile revealed last week that revenue in March increased by 12 percent compared to the same period in 2013 on the back of a 30 percent increase in imports.

“Total revenue collected in March 2014 was MVR 139.7 million, while it was MVR 124.8 million in March 2013,” MCS said in a statement.

“Importation of fuel (such as diesel, petrol and jet fuel) shared 36 percent of total imports in March, twice the value of food items imported during the same period. Third most imported category of goods in March was machinery and electronics which accounted for 15 percent of total imports in March.”

Exports, however, dropped by 65 percent last month compared to the same period last year, which was “linked to the 97 percent reduction in the volume of exports by the state-owned Kooddoo Fisheries Maldives Ltd, whose main export is Frozen Skipjack Tuna to Thailand.”

Customs also revealed that imports in the first quarter of 2014 amounted to MVR7.1 billion, which represented an 11 percent increase compared to the first quarter of 2013.


Parliament accepts bill on revising import duties

Parliament today accepted legislation on revising import duties as part of revenue raising measures proposed with the 2014 state budget.

The amendments (Dhivehi) submitted to the Import-Export Act by MP Mohamed Rafeeq Hassan on behalf of the current administration was accepted with 40 votes in favour and 20 against. The amendment bill has been sent to a committee of the full house for further review.

The bill proposes raising custom duties on a number of items from the current zero rate to five, 10, and 15 percent or higher. The items include diesel, sugar, sweets, cotton, rope, carpets, textiles, fur, man-made filaments, ready-made garments, and steel.

In addition, the import duty for vehicle seat covers would be raised from 30 to 50 percent.

If passed into law, import duties for polythene bags and items that contain hydrochlorofluorocarbons (HCFCs) would be hiked to 400 percent and 200 percent respectively.

Conversely, custom duties for organic and chemical fertilisers as well as pesticides would be reduced to zero percent.

Presenting the draft legislation, the MP for Fuvahmulah North said that the main purpose of the amendments was to increase tariffs on machinery and equipment that uses HCFC gas, and to reduce tariffs on machinery and equipment that uses ozone-friendly gases.

“Similarly, import duties for some goods will be reduced to encourage poultry and environment-friendly farming,” he said.

The import duty hikes were proposed in light of the persisting dollar shortage and rising commodity prices in the world market, he added.

In the ensuing preliminary debate today, Maldivian Democratic Party (MDP) MP Abdul Ghafoor Moosa called the proposed hikes “unacceptable”.

“Taking additional taxes from the public not too long after we introduced taxes will impose a burden on citizens,” Ghafoor said.

He contended that passing the income tax bill should be a higher priority for the Majlis as the tax would only be paid by those earning above MVR30,000 (US$1,946) a month.

Import duties were last revised in November 2011 – concurrently with the introduction of the Goods and Service Tax (GST) – by the MDP government as part of its economic reform package.

Custom duties were eliminated at the time for construction material, foodstuffs, agricultural equipment, medical devices, and passenger vessels and duties were reduced for items such as furniture and kitchen utensils.

Meanwhile, a parliamentary subcommittee tasked with reviewing government-sponsored legislation – intended to raise the Tourism GST, reintroduce the discontinued US$8 bed tax, and mandate the payment of resort lease extensions as a lump sum – has today completed the review process and submitted its report to the full Majlis committee.

The report will be debated at tomorrow’s sitting of parliament, after which the amendments to the GST Act and Tourism Act would likely be put to a vote.

Other revenue raising measures proposed by the government include raising airport departure charge for foreign passengers from US$18 to US$25, leasing 12 islands for resort development, and introducing GST for telecommunication services.

In December, parliament passed a record MVR17.5 billion (US$1.16 billion) budget for 2014, prompting President Abdulla Yameen to call on the legislature to approve the revenue raising measures to enable the government to finance development projects.

The current extraordinary sittings of parliament during the ongoing recess are being held at the request of government-aligned MPs, who contended that the Majlis’s failure to approve the revenue raising measures was hampering the implementation of the budget.


Government’s revenue raising bills sent to committee

Three bills submitted by the government to raise additional revenue have been sent to a committee of the full parliament for further review.

Today’s extraordinary sitting of the People’s Majlis was held during the ongoing recess upon request of 27 government-aligned MPs. The government contends that failure to pass the revenue bills during the last session of 2013 was hampering implementation of the budget.

The three bills accepted today included an amendment to raise the Tourism Goods and Services Tax (T-GST) from eight to 12 percent as well as two amendments to the Tourism Act in order to reintroduce the discontinued flat US$8 bed tax and to require resort lease extension payments to be paid as a lump sum.

While two of the bills were accepted with 38 votes in favour and 26 votes against, the third was accepted with 37 votes in favour and 26 votes against.

The full Majlis committee formed an 11-member subcommittee to review the bills, including five opposition MPs and six pro-government MPs. The extraordinary sittings have been scheduled to resume on February 3.

Among other revenue raising measures proposed by the government are revising import duties, raising airport departure charge for foreign passengers from US$18 to US$25, leasing 12 islands for resort development, and introducing GST for telecommunication services.

In December, parliament passed a record MVR17.5 billion (US$1.16 billion) budget for 2014, prompting President Abdulla Yameen to call on the legislature to approve the revenue raising measures to enable the government to finance development projects.

“Double taxation”

MPs of the opposition Maldivian Democratic Party (MDP) voted against all three pieces of government-sponsored legislation, expressing concern over potential adverse effects on the tourism industry.

While some government-aligned MPs echoed the concerns, most argued that increasing government revenue was essential for providing public services and financing government operations.

MP Ibrahim Mohamed Solih, parliamentary group leader of the MDP, has previously contended that raising T-GST while reintroducing the bed tax would amount to “double taxation.”

Following the Majlis’s failure to extend the tourism bed tax before the end of last year, Finance Minister Abdulla Jihad told local media that the resulting losses to state revenue would be MVR100 million a month.

In an interview with Minivan News last week, Tourism Minister Ahmed Adeeb said parliament had not considered the impact on the budget when it broke for recess without extending the bed tax.

“Normally, budget and government revenue earning bills are passed together. But here, the parliament goes into recess after passing the budget, leaving the income bills pending for after that. And even then, they often just fail,” he said.

“This causes the budget to expand, but there’s no way for the government to earn enough to implement it. The T-GST [Tourist Goods and Services Tax] matters even more to the state income. The state keeps expanding, the allowances and salaries keep increasing, but the income for all of this still depends on the 25,000 tourist beds. Unless we expand this, how can we increase what we earn? We can’t keep expanding the state, and then squeezing the existing tourism sector without expanding it.”

On January 6, Adeeb issued a circular to all tourist establishments informing the resorts that the government was seeking reintroduction of the bed tax.

Resort lease extensions

Under the amendments proposed to the Tourism Act, resort leases can be extended to 50 years with a lump sum payment of US$100,000 per year.

Resorts with approved lease extensions – currently paying for the extension in installments – would also have to make the full payment within three months of ratification.

Following the controversial transfer of presidential power in February 2012, the administration of President Dr Mohamed Waheed allowed extended resort leases to be paid in installments, rather than upfront at the end of the lease.

In April 2012, the Maldives Inland Revenue Authority (MIRA) revealed that the total revenue collected in March 2012 was 37.9 percent lower than the projected revenue “mainly due to the unrealised revenue from the Lease Extension Period.”

At the time of the Tourism Ministry’s announcement of the extension payment changes, the government had already received lump sum payments from 25 resorts equating to US$40 million and was expecting nearly US$135 million more from 90 resorts.

“The [administration of former President Mohamed Nasheed] had requested that those resorts extending to a 50 year lease pay in a lump sum,” former Tourism Minister Dr Mariyam Zulfa explained to Minivan News at the time.

“[But] while I was Tourism Minister, Gasim Ibrahim and Ahmed ‘Redwave’ Saleem kept pressuring me to let them pay on a yearly basis. They didn’t want to give any money to the government, and soon after the government changed they got what they wanted. [The installments] will only be payable at the end of the current lease periods – it is a huge loss to the treasury.”


Government bill on raising import duties narrowly accepted by parliament for consideration

Parliament voted 26-25 today to accept for consideration a bill proposed by the government to increase import duties as part of a raft of measures to raise MVR 1.8 billion (US$116 million) in new income.

The amendments to the Import-Export Act (Dhivehi) submitted by MP Riyaz Rasheed on behalf of the government proposes raising tariffs on a range of items such as liquor, pork, tobacco, perfume, cement, gas and energy drinks.

MPs of the opposition Maldivian Democratic Party (MDP) voted against the amendments while MPs representing parties in the ruling coalition voted in favour.

However, during preliminary debate at today’s sitting of parliament, some government-aligned MPs expressed concern with the potential rise in prices as a consequence of reversing import duty reductions.

The acceptance of the bill for review by committee follows parliament’s 28-27 rejection last week of government-sponsored legislation to raise the airport service charge to US$30.

Hiking the departure tax on foreign passengers was among the measures proposed by the Finance Ministry with the 2013 budget to raise additional revenue, which also included increasing Tourism Goods and Services Tax (T-GST) to 15 percent from July 2013 onward, leasing 14 islands for resort development and introducing GST for telecom services.

Following the narrow defeat of the airport service charge amendment bill, Finance Minister Abdulla Jihad told local media that a “significant amount” would be lost from projected revenue as the additional income was anticipated in budget forecasts.

“If the amendments for the import duty are not passed, we will find it extremely difficult to manage the budgets of institutions. So it’s critical that the parliament expedites work on the bills and support them,” he was quoted as saying by newspaper Haveeru.

Jihad confirmed to Minivan News this week that the cabinet has decided to suspend or delay implementation of development projects financed out of the state budget due to shortfalls in revenue.

The government was in the process of formulating a supplementary budget to be put before parliament by the end of April, Jihad said.

Meanwhile, speaking to press on Sunday (April 21) following the signing of contracts for construction of harbours in four islands, Housing Minister Dr Mohamed Muiz said the budget was “in a very fragile state.”

“We can only spend what is earned as income. The government proposed new revenue measures when it submitted the budget. It was approved on principle when the budget was passed,” Muiz said.

“However, according to my information, difficulties have arisen in implementation [of the measures]. As a consequence, aside from these four islands, the finance ministry has instructed me not to sign or commence with any infrastructure project in any island from now on. Unless the People’s Majlis passes new means of earning income for the government, the finance ministry has instructed us not to begin any project financed out of the government budget, be it harbour construction or land reclamation or any project undertaken by the housing ministry.”

Revising import duties

The current administration’s intention to revise the changes made by the previous government to import duties was announced in June 2012.

Import duties were reduced or eliminated for a wide range of goods under the previous administration as part of its economic reform package to introduce direct taxation and restructure government finances.

Through amendments approved unanimously in November 2011, import duties were eliminated for construction material, foodstuffs, agricultural equipment, medical devices, passenger vessels and goods used for tourism services.

Tariffs were meanwhile reduced to five percent for furniture, beds and pillows as well as cooking items made from base metals. Other kitchen utensils had duties reduced to 10 percent.

While import duties were eliminated for most fruits and vegetables, 15 percent was to be levied on bananas, papaya, watermelon and mangoes as a protectionist measure for local agriculture. Areca-nuts had the tariff reduced from 25 percent to 15 percent.

Import duties for tobacco was meanwhile hiked from 50 percent to 150 percent.

However, an amendment proposed by the government to raise import duties for alcohol and pork from 30 to 70 percent was defeated at committee stage.

A shortfall in revenue from lower tariffs was expected to be covered by proceeds from T-GST and GST, the latter of which was introduced concurrently with the import duty reductions.

In December 2012, the Maldives Custom Service (MCS) revealed that income from collecting import duties declined by 50 percent in the first 10 months of 2012 compared to the previous year.

Meanwhile, in November 2012, an International Monetary Fund (IMF) mission to the Maldives cautioned that a ballooning fiscal deficit had “implied a rise in the public debt ratio, which now stands at over 80 percent of GDP, and has also helped to boost national imports, thus worsening dollar shortages in the economy and putting pressure on MMA (Maldives Monetary Authority) reserves.”

The IMF forecast for the current account deficit in 2012 was “nearly 30 percent of GDP this year.”

“Gross international reserves at the MMA have been declining slowly, [and] now account for just one and a half months of imports, and could be more substantially pressured if major borrowings maturing in the next few months are not rolled over,” the IMF mission warned.

The mission recommended formulating “a realistic and prudent budget for 2013″ to rein in the fiscal deficit, suggesting hiking taxes and “selectively” reversing import duty reductions.


Imports, exports rise in first quarter of 2013

Imports to the Maldives increased by 12 percent in the first quarter of 2013 compared to the same period last year, according to the Maldives Customs Service.

Total imports in the first quarter amounted to MVR6.5 billion (US$421.5 million) compared to MVR5.8 billion (US$376 million) in 2012.

Exports meanwhile grew by 44 percent compared to the same period in 2012.  During the first three months of 2013, exports rose to MVR785 million (US$51 million) from MVR545 million (US$35 million) in Q1, 2012 .

Total revenue from import duties also increased by nine percent compared to the same period last year.


Government’s revision of import duties “doesn’t make sense”, say former economic ministers

Minister of Finance and Treasury Abdulla Jihad yesterday announced the government’s intention to revise the changes made to import duties and to reduce the Goods and Services Tax (GST), after arguing that these policies had failed to improve the state’s finances.

The measures, introduced under the previous government, followed consultations with the International Monetary Fund (IMF) over how to strengthen and stabilise the economy.

These policies included introducing a general Goods and Services Tax (GST); raising import duties on pork, tobacco, alcohol and plastic products; raising the Tourism Goods and Services Tax (T-GST) to 6 percent; and reducing import duties on certain products.

The shortfall from reduced import duties was expected to be more than compensated for by Rf 2 billion (US$129.8million) in Tourism Goods and Services Tax (T-GST), effective since February 2011, and Rf1 billion ($US64.9 million) as general Goods and Services Tax (GST), introduced in August 2011.

Jihad yesterday explained that it was the failure of these taxes to cover lost import duties that prompted a revision of these policies.

“There hasn’t been an increase in State revenue by increasing GST after reducing duties. The GST had been increased from this year to cover the cut down on duty rates. But GST revenue does not even come close to covering it,” Jihad told Haveeru.

Amendments to the Export-Import Act were passed in the Majlis in November last year. The amendments eliminated import duties for items such as construction material, foodstuffs, agricultural equipment, medical devices, passenger vessels and goods used for tourism services.

Duties were raises for tobacco, whilst the motion to increase pork and alcohol duties – items considered haraam under Islam and therefore consumed only on the resort islands – was defeated.

T-GST, as well as GST, was raised to 6 percent in January this year. The IMF has more recently urged that T-GST be raised to 12 percent in order to expedite the government’s deficit reduction efforts.

Jihad is reported as having told Haveeru that the government will also look to increase T-GST as it works to reduce a budget deficit that is anticipated to reach 27 percent of GDP this year – Rf9.1billion (US$590million).

Last month Jihad told Minivan News that the government was seeking to reduce all non-wage expenditure by 15 percent. He also explained that a pay review board was to be convened in order to “harmonise” the pay of all government employees, although he was keen to add that wage cuts would only be considered as a last resort.

“It doesn’t make sense”

Haveeru yesterday reported that around Rf1 billion (US$64.9 million) had been lost after the reduction in import duties.

Former Finance Minister Ahmed Inaz, who presided over the previous government’s economic reforms, said that this figure was inaccurate. He argued that the import duties lost amounted to a figure closer to Rf500million (US$32.5million).

Inaz also pointed out that Jihad’s proposed policy revision went against the Maldives’ previous commitments to free trade.

“We are founding members of the World Trade Organisation (WTO) and members of the South Asian Free Trade Area (SAFTA). We should be increasing trade – tariffs are not the best way to do this,” said Inaz.

“GST is a more transparent system [than import duties] which also enhances opportunities for the business sector,” he added.

GST benefits companies with less initial capital as products are taxed at the point of sale rather than up front upon entry to the country.

Jihad’s assertions that the previous government’s economic reforms are failing appear not to be borne out by the Maldives Inland Revenue Authority (MIRA) figures, the most recent of which show that the state has received Rf 418 million (US$27.1million)  and Rf 789 million (US$51.2million) in GST and TGST respectively, over the first five months of this year.

Should this revenue stream continue on a similar path, the government can be expected to receive around Rf 2.9 billion (US$188.3million) from GST and TGST. The government income from import duties over the past five years has been just over Rf 2 billion (US$129.8million).

Jihad was not responding at time of press.

Former Minister for Economic Development Mahmood Razee believed that the government was “trying to confuse the issue”.

“They are trying to create the illusion that this is the case but the calculations were confirmed and passed through the Majlis,” he said.

Failing a large reduction in the amount of goods coming into the country, Razee continued, these calculations should  still be valid. He added that he had been unable to get specific details on such figures from customs.

Both Razee and Inaz were confused as to the merit of the seemingly contradictory measures of increasing import duties whilst reducing GST.

Speaking to Minivan News separately, both said: “It doesn’t make sense.”

Inaz last night Tweeted: “Rationalising state expenditure and increasing revenue from tax is the only way forward”.

“We need political agreement to reduce expenditure in order to achieve maintainable economic stability,” he told Minivan News today.


Revenues grow, but not enough for budget deficit to shrink

The Maldives’ Inland Revenue Authority (MIRA) has released its figures for May, showing an increase of 9.5 percent in government revenue compared with the corresponding month in 2011.

The total revenue collected in the month of May is reported to have been Rf389.6 million (US$25.3million).

The report states that 35.6 percent of income came from the T-GST, a levy charged on all goods and services sold in the tourism sector, which itself has risen more than 119 percent compared with the corresponding period in 2011.

The yearly revenue collected by MIRA is now reported to be 74.2 percent more than at the same point in 2011.

The MIRA statistics do not, however, account for the loss of government revenue from import duties after amendments were made to the import-export act in November 2011. Import duties did not appear on MIRA’s books, even before these changes.

The changes to import duties were anticipated to reduce government import fees by Rf491.7million (US$31.9million) in 2012, according to the Maldives Monetary Authorities (MMA) projected figures.

This shortfall was expected to be more than matched by the introduction of the newly introduced Goods and Service Tax (GST) and an increase in T-GST to 6 percent starting from January 2012.

The MIRA figures show that the loss of the Rf491.7million in import duties has indeed been more than compensated for by an increased revenue of Rf418 million (US$27million) from new GST, and Rf429.1million (US$27.8million) from the raised T-GST.

While the MIRA figures show its own revenue growing exponentially, the wider budgetary picture shows the government is failing drastically to offset its budgetary commitments.

Governor of the MMA Dr Fazeel Najeeb was recently reported as saying that the Maldives was “now in a dangerous economic situation never before seen in recent history.”

The International Monetary Fund (IMF) has expressed its concern over the country’s dire balance of payments situation which has been estimated by the Majlis’s Financial Committee to be 27 percent of GDP this year.

The 2012 budget was initially estimated to be around 9.7 percent of GDP, but in May was revealed to be much larger after significantly reduced expenditure and increased expenditure was taken into account.

The deficit is now predicted to be Rf9.1 billion (US$590 million)this year. An extrapolation of MIRA’s figures for the whole year suggest that the increased revenue from the changes to the point at which goods are taxed could amount to just over Rf850 million in additional government revenue.

The IMF has suggested the government further raise T-GST from 6 to 12 percent as part of its efforts to plug the financial gap.

The Financial Committee have said added that the government’s deficit may get worse before it gets better with additional spending commitments yet to be made.

Head of the Financial Committee Ahmed Nazim has listed these expenses as including food subsidies worth Rf270 million (US$17.5 million), electricity subsidies worth Rf250 million (US$16.2 million), capital expenditure by government institutions Rf735 million (US$47.6 million) and an allocation of Rf200 million (US$12.9) to the Aasandha Health Insurance scheme’s budget.

President’s Office Spokesman Abbas Adil Riza has claimed that the previous administration left Rf3-4 billion in expenses hidden from the public accounts.

The policies of the current government have also resulted in losses, including  around Rf123.2 million a quarter (US$8 million) a quarter in airport concession fees due to a Civil Court ruling blocking the levying of an airport development charge as well as up to Rf2 billion (US$135 million) in land lease payments due to policy reinterpretation.

MIRA’s figures are starting to give a better indication of the revenue being lost through this change in the land lease arrangements as this month’s figures show a 25.9 percent reduction in this area when compared with the same period last year, amounting to Rf59million (US$3.8million).

Current government spending for the year has meanwhile increased by almost 24 percent, to a total of US$1.13 billion. Spending unaccounted for in the 2012 budget following the controversial change of government of February 7 has included the promotion of a third of the police force, lump sum payments to military personnel, Rf100 million (US$6.5 million) in fishing subsidies, reimbursement of Rf443 million (US$28.8 million) in civil servant salaries following cuts by the previous administration, the creation of two new ministries, and the hiring of international PR firms to counter negative publicity.


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.