Revenue figures reveal economic impact of change in lease extension policy

The Maldives Inland Revenue Authority (MIRA) released figures earlier this week showing the extent to which the change in island lease payments has affected the Maldivian economy.

According to MIRA’s figures, the total revenue projected for March was Rf1044 million [US$ 68 million], but had received 37.9 percent lower than the projected revenue “mainly due to the unrealised revenue from the Lease Extension Period.”

MIRA had anticipated to receive a total of Rf375 million [US$ 24 million] for lease extensions – however, due to government’s recent decision to accept resort island’s lease extension payments in installments – the  income received dropped to nearly Rf23 million (US$1.5 million).

These figures were published the same week that the International Monetary Fund (IMF) warned the People’s Majlis that drastic measures must be made to reduce the government’s budget deficit. At the same time, the government announced that it was promoting a third of the police force and paying two years of allowances to defence personnel.

The IMF noted that the budget figures it had seen did not reflect the lost revenue resulting from the change in collection of lease payments.

Concluding the IMF’s visit to the country, the group’s representative suggested that the government reduce civil service pay and benefits, re-introduce recently removed import duties, increase the Goods and Services Tax (GST) and increase the bed tax by 50 percent.

The IMF’s expressed it fears that the government may exhaust its reserves if it did not resolve its budgetary imbalances: “Immediate steps have to be taken. This is the reality, we have to face it.”

MIRA’s figures appear to bear out the fears of the former Tourism Minister Dr Mariyam Zulfa, who predicted that the new government, having “over-interpreted” the repayment clauses in the Tourism Act, could expect to see up to $135 million taken from government revenues in the next year.

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 more from 90 resorts.

“The lease extension is about increasing the asset value of the properties. In the Maldives, all the islands actually belong to the government and when the second amendment to the tourism law came into place it gave the option for resorts to extend the existing 25 year leases to 50 years,” explained Dr Zulfa, at the time.

“A time period was given and there is a clause [in tourism lease extension regulation] that stipulates that the payment must be done in completion before the lease period can be extended. So, the Nasheed government had interpreted that clause as the payment to be paid in full for the period extended. So, because the wording is such that the payment must be complete before the extension is granted, we interpreted it as the full payment.”

“But there is another clause [in Tourism Act] which says the manner in which the payment is calculated is on an annual basis. This [current] government has over-interpreted that clause and has said that the payment has to be made on an annual basis, but I have always insisted that the value of the government assets must not be allowed to decrease because the payments go to funding welfare services, housing projects, infrastructure projects, health services and so on that would benefit the local community,” she said.

“The current government has not only allowed payment to be made on an annual basis but allow for the payment to start at the end of the 25 year period, which is years away. It is a huge loss to the government treasury, about US$150 million, and I think as a result that a lot of people will be deprived of the many projects that we have started for the benefit of the communities across the atolls,” argued Zulfa.

Meanwhile, the Tourism Minister Ahmed Adheeb has said that the government would reimburse US$ 40, accepted as lease extension payments prior to the change in policy  by deducting the amount from the rent payments.

Explaining the decision at the time, Adheeb also said that the government was happy make things easier for the tourism industry wherever it could, after it had contributed so much to the economy through taxes.

He further claimed that the government was seeking to act in line with a December 2011 High Court ruling against Nasheed administration’s interpretation of the relevant clause in lease extension regulation.

After the ruling was made, and before it lost control of the government, the Maldivian Democratic Party (MDP), had stated its intention to appeal the High Court’s decision. Dr Zulfa reports that the current government has removed this appeal from the high court.


MATI not taking sides on proposed resort lease amendments

Proposed amendments to the Tourism Act relating to lease extensions for Maldivian resorts are said to have divided opinion among industry insiders, according to the Maldives Association of Tourism Industry (MATI).

MATI Secretary General ‘Sim’ Mohamed Ibrahim told Minivan News that proposals presented to the Majlis yesterday by MP Abdu Raheem Abdulla, if passed, would allow 50 year lease extension payments to be made gradually on an annual basis.  Sim claimed that the decision to support or oppose the amendment had proven difficult for the association, with different resort owners welcoming and opposing the bill.

“MATI cannot take sides on this issue. While we have some people who can pay the money straight away, we know of others [resort owners], who would prefer the amendments,” he said.

According to newspaper Haveeru, Abdulla’s proposed amendment would allow contractors requesting an extension of their existing lease to pay a US$100,000 fee to pay instalments every year over the life of the contract.

Abdulla was reported to have forwarded the amendment over fears that news jobs would not be created in the country if the government received upfront payments from extension agreements.

Sim said that he believed that at present, the government preferred the system currently in use where lease extensions were paid within an 18-month period of a contract being signed by a resort.

A Tourism Ministry spokesperson confirmed that the Government’s official view was that it supported existing tourism laws that supported an upfront fee payment made over a shorter time-frame.

The spokesperson conceded that he had not fully read the proposals forwarded by Abdulla at present and was unable to elaborate on further on the exact changes they may entail for the industry.