Tag: MIRA

Tourism Ministry hits back at MIRA accusations over failure to collect resort rents

The Ministry of Tourism has hit back at claims made last week that it was failing in its duty to collect rents and associated non-tax revenue from the country’s largest industry.

Following claims made by the Commissioner General of Taxation at the Maldives Inland Revenue Authority (MIRA) that the tourism ministry was failing perform its duty of collecting such revenue, State Minister for Tourism Mizna Shareef has called the accusations “baseless and unfair.”

“Under the new tax regime, MIRA can go after those who don’t pay rent,” said Mizna. “It is very unfair and inappropriate for MIRA to make these statements.”

Mizna argued that the authority had been pressuring the tourism ministry to suspend operating licenses for late-payers without considering the wider implications for the industry as a whole.

“There has to be balance – the industry must be protected while rents are collected,” she continued.

Tourism is by far the largest industry in the country, contributing over 70 percent of GDP via associated industries and 90 percent of all foreign exchange receipts.

Allegations by groups in support of the now-opposition Maldivian Democratic Party (MDP) linked several prominent Maldivian resort operators with February’s disputed transfer of power.

A travel advisory created shortly after the transfer rated resorts on a traffic-light system, urging against travel to resorts marked ‘red’ – being linked with the alleged coup-makers. The site has since been taken down.

The recently completed Commission of National Inquiry (CNI) ruled that the transfer of power had occurred within constitutional boundaries – a decision over which the MDP has registered strong reservations.

Tourist arrivals have continued to rise this year, with the Asian (largely Chinese) market taking up the slack from a downturn in European holiday-makers, although growth has slowed considerably in comparison with last year.

Director General of Revenue Service at MIRA, Fathuhulla Jameel, was not responding to calls at the time of press.

Lease extension

MIRA’s figures for August showed that ‘Tourism Land Rent’ collected last month was only 19 percent of the amount collected in the corresponding period last year.

Tourism land rent for the year so far is shown to be only three quarters of that collected by the same point on 2011.

The importance of this revenue stream can be seen in the share of overall revenue tourism land rent alone contributes to the authority’s figures – making up 10 percent of MIRA’s income this year.

Another important source of tourism revenue comes from lease extension payments from resort operators – islands are ultimately the property of the state and are leased to the operators on long term bases.

Mizna took issue with the suggestion that the government had re-interpreted the lease extension payments with detrimental effects for the state’s annual budget.

MIRA’s figures show that revenue from lease period extension fees has been US$11million (MVR 168 million) so far this year, compared to US$20million (MVR 273 million) at the same point in 2011.

Mizna argued that the initial arrangement for the collection of lease extension payments had not been fully elucidated by the courts prior to the current government’s assumption of office.

A High Court ruling last December ruled in favour of the 2010 second amendment to the Maldives Tourism Act after it was said to contradict article 8 of the original legislation, pointed out Mizna.

The second amendment states that fees of US$100,000 for every year extended should be paid over a period of between 18 or 36 months depending on operator’s status when the act was published in the government gazette.

The Nasheed government had requested that the payments be made in a lump sum.

Former Tourism Mariyam Zulfa, speaking shortly after the new government took office, explained the Nasheed government’s reading of the system.

“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. A time period was given and there is a clause that stipulates that the payment must be done in completion before the lease period can be extended,” she said in March.

“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,” she continued.

“But there is another clause which says the manner in which the payment is calculated is on an annual basis. This government has over-interpreted that clause and has said that the payment has to be made annually,” argued Zulfa.

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MIRA accuses Tourism Ministry of not collecting resort rents

Commissioner General of Taxation at the Maldives Inland Revenue Authority (MIRA), Yazeed Mohamed, has named the Tourism Ministry as the prime culprit amongst state institutions which are failing to collect payments owed to the government.

“If rent on resorts is not paid, the Tourism Ministry must take action in accordance with the agreement. But so far no such action has been taken against anyone,” Yazeed told local newspaper Haveeru.

As MIRA was not party to the agreements made between certain government institutions and third parties, it could not itself enforce or implement payments, he explained.

“If rent is not paid we have to take it up in court. That is to obtain payments not paid for a certain period. Then it is used as an excuse. From that point on they get a free license to stay without making payments. Once a case is filed in court, it can go up to two years without a single payment,” Yazeed told Haveeru.

“Not everybody is penalised equally. There is no differentiation between the parties that pay the amount that is owed or the ones that don’t,” he added.

Despite not collecting payments such as land rents and associated fees, MIRA includes such figures on its monthly statistics.

The figures for August showed that ‘Tourism Land Rent’ collected last month was only 19 percent of the amount collected in the corresponding period last year.

Tourism land rent for the year so far is shown to be only three quarters of that collected by the same point on 2011.

The importance of this revenue stream can be seen in the share of overall revenue tourism land rent alone contributes to the authority’s figures – making up 10 percent of MIRA’s income this year.

Former Economics Minister Ahmed Inaz told Minivan News today that this issue was also a problem under the former Maldivian Democratic Party (MDP) led government.

“The system is not transparent or fair – under the Nasheed government or now,” said Inaz.

“The Judiciary and executive should penalise industries which are penalising the system. The system should be designed for all, not individuals,” he said.

Dr Mariyam Zulfa, Tourism Minister under the Nasheed administration, disputed the suggestion that any resort owners received preferential treatment during her tenure and said that non-compliance was always a problem, everywhere.

“Only about 10 percent of resort operators failed to comply. In every country there are those who do not comply with taxation legislation’s requirements – the Maldives is no different” she said.

MDP members have persistently linked powerful resort owners with what it perceived to be a coup d’etat which saw President Mohamed Nasheed leave office in February.

Shortly after the transfer of power, there was a re-interpretation of the legislation governing island lease extensions which Zulfa predicted would severely reduce government revenue.

“The Nasheed government had requested that those resorts extending to a 50 year lease pay in a lump sum,” she said 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,” she added.

MIRA’s figures show that revenue from lease period extension fees has been US$11million (MVR168million) so far this year, compared to US$20million (MVR273million) at the same point in 2011.

Minister of Finance and Treasury Abdulla Jihad told the Majlis’ Finance Committee earlier this week that state revenue was expected to be MVR3.1billion (US$200million) less than expenditure this year.

Neither the current Minister for Tourism – Ahmed Adheeb – nor the Deputy Tourism Minister – Mohamed Maleeh Jamal – were responding to calls at the time of press.

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MIRA omits five businesses from GST non-compliers list

Maldives Inland Revenue Authority (MIRA) has revealed that five businesses or persons have been omitted from the Goods and Services Tax (GST) non-compliers list for the first quarter of 2012.

MIRA explained in a statement yesterday that the list was published in the government gazette on June 14 in accordance with the policy on ‘Disclosure of non-compliant GST registered persons.’

Five businesses or persons from the atolls were omitted from the list after they complained and were discovered to have made the tax payments. They were Blue Link Maldives Pvt Ltd, Ahmed Zuhair, Ahmed Saeed, Ruggiya Ali and Mohamed Saeed.

In its statement, MIRA apologised for “any burden they might have had to bear” as a result of the inclusion in the non-compliers list. The statement noted that non-compliers were contacted through phone or text message before being named in the list, adding that efforts were underway to ensure that non-complier lists disclosed in the future would be accurate.

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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.

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Government to consult tourism industry on potential T-GST increase

The government will hold a consultation with the tourism industry this week to test its appetite for an increase in the Tourism-GST (TGST), Tourism Minister Ahmed Adheeb has said.

The International Monetary Fund (IMF) has urged the Maldives to increase the T-GST from six percent to 12 percent, among several measures the organisation says are urgently needed to offset the Maldives’ spiraling budget deficit, and avoid miring the country in poverty.

Parliament’s Finance Committee last week calculated that the budget deficit would reach 27 percent of GDP, on the back of plunging revenues and a 24 percent increase in government expenditure.

Adheeb told Minivan News that the government would present the IMF’s report to the industry, and discuss how to proceed: “We have to be realistic,” he said.

“The IMF has recommended an increase to 12 percent – we need to discuss what kind of increase the industry would like to see over the next five years,” he said.

Adheeb emphasised the need for stability rather than sporadic increases in the tax, cautioning against a sudden change in the T-GST which would affect those tour operators who make pricing agreements and publish brochures up to a year in advance.

However, Secretary General of the Maldives Association of Tourism Industry (MATI), Mohamed Ibrahim ‘Sim’, warned that the tourism industry was already under pressure from a decline in traditional markets.

“Is there an appetite [to increase the TGST]? No, not really. The European economy is not doing well and we would like the costs to remain the same – GST is something we have to pass to the customer. We need to maintain it, at least for the moment,” Ibrahim said.

One resort manager told Minivan News on condition of anonymity that such an increase would have “serious ramifications on many of the markets.”

“Some operators will not accept the increase mid-contract and hence resorts will have to absorb this from revenue,” he explained. “The additional costs will need to be balanced somewhere in the operation and you will find resorts have to [reduce] some of the nice touches for guests, [cut] staffing levels etcetera in order to deal with these ever growing expenses.”

The manager expressed exasperation that resorts were being asked to shoulder the burden without a parallel commitment from the government to reduce expenditure.

“We have seen an increase in some public services salaries and a reduction on working hours in many government departments who are meant to serve the resorts. Many of these government departments make it difficult for the resorts to do their jobs, with bureaucracy and rules to keep extra people in a job rather than making it easier to support the resorts in order to do their job: build more business, increase revenue and hence increase GST [revenue] in a positive manner. An increase in GST right now is the wrong solution.”

The government “needs to take a more supportive approach to the resorts”, he suggested, “whether it be processing visas, expediting customs waits or speeding up the immigration process for guest at the airport. A serious revision of the various government departments is required.”

According to figures from the Maldives Inland Revenue Authority (MIRA), the T-GST brought in 32.4 percent of all government revenue in April.

Total revenue collected in April was Rf2.5 billion (US$162.1 million) – almost double that collected in April last year – however MIRA’s figures do not take into account the substantial revenues lost from the phasing out of import duties, previously the Maldives’ main source of tax revenue.

Former government to blame?

Adheeb blamed the need for the increase on the former government’s changes to the calculation of land lease rents, which he claimed were responsible for an Rf540 million (US$35 million) shortfall overall after the new taxes were introduced.

MATI’s Ibrahim however contended that the changes to the fixed rents were offset by the new taxes: “Our calculation at the time these taxes were introduced were that overall it balances out, but that some resorts pay more.”

Recent changes introduced by the new government to the payment of lease extensions – from a lump sum to an annual basis – have also pulled US$135 million in revenue from the 2012 budget, the ousted Maldivian Democratic Party (MDP) contends.

Economic indicators published by the Maldives Monetary Authority (MMA) meanwhile show a fall in the number of tourist arrivals for March 2012 compared to the previous year, from 80,732 to 76,469. The number of bed nights fell 6.8 percent for the same period, one of only a few recorded declines since the 2004 tsunami. February – a month of high political turmoil and widespread negative international media coverage – recorded a 2.5 percent decline.

An increase in prices would affect established markets already under strain, Ibrahim reiterated.

“It’s hard to say if emerging markets would be put off – China, Russia and the Middle East – maybe not. But [price increases] are affecting the established market. The market situation is not looking good at the moment.”

A survey of nearly 3000 tourists last year reported that 46 percent believed accommodation in the Maldives was too expensive. Soft drinks, alcohol were rated as expensive by 42 percent, while food, water and souvenirs received a similar rating from 41 percent of tourists polled.

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Government to shun service providers not registered under GST scheme

Government authorities are being urged not to obtain goods or services from businesses that have failed to register for the Goods and Services Tax (GST).

A new Finance Ministry circular has said government offices must not conduct business or sign contracts with enterprises not registered with the Maldives Inland Revenue Authority (MIRA), according to local media reports.

The circular has been signed by the present Finance Minister Abdulla Jihad.

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Civil Court cancels hearings of Rf 16 million case filed by MIRA against Yacht tours Maldives

The Civil Court has today cancelled the hearings of a case filed by the Maldives Inland Revenue Authority (MIRA) against Yacht Tours Maldives Pvt. ltd, a company owned by Jumhoory Party (JP) deputy leader Abdullah Jabir, to retrieve a sum of money worth Rf 16 million.
The case was scheduled to be held 10:00AM this morning but had to be cancelled as the defendants, Yacht Tours Maldives, failed to report to the court hearings today.

MIRA is filing to claim a total sum of Rf 16,225,463 (US 1,052,235) from 2 resorts. That is a sum of Rf 13,331,237 (US 864,542) as land rent and fine from Alidhoo Island resort and a sum of Rf 2,894,226 (US 1,052,235) as land rent and fine from Kudarah Island resort.

The case comes at a time where the owner of Yacht Tours Maldives -business tycoon Abdulla Jabir – has announced his candidacy to compete in the upcoming by-elections for the Kaashidhoo seat.

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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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