Maldivian economy grew by 8.5 percent in 2014, says MMA

The Maldivian economy grew at 8.5 percent in 2014, the central bank has said. Growth was driven by a solid increase in tourist arrivals and the strong recovery of the construction sector.

The government’s fiscal performance in 2014, however, was weaker than anticipated due to shortfalls in revenue and overspending on recurrent expenses, the Maldives Monetary Authority said in its Annual Economic Review.

The International Monetary Fund (IMF) in March provided a much lower figure of five percent for economic growth, and highlighted the need for improved data collection on macroeconomic statistics.

According to the MMA, the government’s total debt reached 65 percent of GDP in 2014, while the fiscal deficit stood at MVR1.6billion or 3.4 percent of GDP, higher than the estimated MVR1.3billion or 2.8 percent.

The tax authority has meanwhile collected MVR951.3million (US$61.9million) in tax revenue in March. The figure is 2.7 percent higher than forecasted as several tourism companies had paid late land rents and fines after the Maldives Inland Revenue Authority (MIRA) froze the accounts of some 20 businesses in April.

MIRA has received MVR 5.61 billion (US$ 360 million) in revenue this year, an increase of 27.3 percent compared to 2014. The tax authority, however, did not state if revenue collection meets targets.

Robust growth

Some 1.2million tourists brought in an estimated US$2.6 billion to the Maldives in 2014. Arrivals grew by 7 percent and was largely driven by arrivals from China. European arrivals recorded a marginal growth due to a decline in Russian tourists.

The growth in bed nights stood at 4 percent – slight lower in magnitude than the growth in arrivals – reflecting the decline in average stay from 6.3 days in 2013 to 6.1 days in 2014. The downward trend in average stay, which has become more marked since 2009, is due to a shift in the composition of inbound tourist markets towards countries such as China, the MMA said

Meanwhile, total tourist revenue remained buoyant and grew by 13% (20% growth in 2013) to reach an estimated US$2.6 billion during 2014. The significant difference between the growth in revenue and bednights may reflect the increase in tourist expenditure on high-end services in the industry, the MMA said.

Airline movements by international carriers, such as Mega Maldives, Cathay Pacific and budget airlines such as Tiger Airways, also increased during the year, and facilitated the growth in tourist arrivals.

Three new resorts were opened, increasing total registered number of resorts in the Maldives to 112. Registered guesthouses reached a total of 216. Some 80 new guesthouses were registered at tourism ministry, but only a total of 95 in operation.

The construction sector bounced back from two consecutive years of negative growth. The revival was mainly due to the ease in obtaining construction materials after India waived restrictions on the export of stone aggregate to in March 2014. This allowed the resumption of large-scale public sector infrastructure projects and major housing projects, the MMA said.

The fisheries sector declined by 6 percent,  following a strong growth of 8 percent in 2013, due to a decline in fish catch, and also because of the significant dip in international tuna prices.

The fishing industry in the Maldives represents about one percent of GDP in 2014. It accounted for 10% of total employment in 2010. Export revenue from fish and fish products accounts for 47 percent of merchandise exports.

Poor fiscal performance 

The government collected some MVR14.5billion in revenue in 2014. But total revenue fell short of the target as some of the new revenue measures planned in the budget did not materialize.

The implementation of of a T-GST hike – from 8 percent to 12 percent – was delayed from July 2014 to November 2014; tourism tax, initially anticipated to be collected throughout the year was only collected from February to November.

There was a “considerable shortfall” from the lease period extension fee collected during the year. The lump-sum resort acquisition fee from the 12 new islands planned to be leased out for resort development did not materialize either.

As a result, total revenue was MVR351.0 million less than budgeted and amounted.

The total expenditure of MVR16.5 billion was slightly lower than budgeted, but only because the government stopped spending on development projects and redirected funds to financing recurrent expenditure.

In the banking sector, the main area of concern continued to be credit risk, as indicated by the high level of poor-quality loans. Non-performing loans “remain a concern with a ratio of 16 percent,” the MMA said.

Gross international reserves increased to US$614.7 million at the end of the year. Out of this, usable reserves accounted for US$143.9 million. The “marked expansion” owed to the improvement in foreign currency receipts of the government, the MMA said.




Maldives’ resorts among world’s best, but industry insiders express concern over Green Tax

Three Maldivian resorts have been named among the world’s top 25 hotels by TripAdvisor, but industry specialists have expressed concern over the new green tax and rising prices.

Gili Lankanfushi Maldives placed top in the recently announced Traveler’s Choice Awards, based upon the quantity and quality of reviews posted on the website, while two other Maldivian resorts – Cocoa Island and Constance Moofushi – ranked at number six and fifteen, respectively.

The survey by the world’s largest travel website acknowledged over 8,100 properties based on one year’s worth of reviews and opinions from its 315 million unique monthly visitors.

“We are very glad that three of our resorts got included as top hotels in the world,” said Maldives Association of Tourism Industry Secretary General Ahmed Nazeer.

Four other Maldivian locations were named as part of the top 25 hotels in the Asian region. Baros Maldives was awarded ninth place on the regional list, Soneva Fushi placed 13th, while LUX* Maldives and Komandhoo Maldives Resort earned 21st and 22nd, respectively.

Meanwhile, industry specialists have expressed concern that the Maldives might soon become an overpriced destination due to increasing taxes and service charges, with the latest levy taking the form of a US$6 green tax.

“The green tax will definitely have an impact,” said Shafraz Fazley, Managing Director of Viluxur Holidays to “It is (already) becoming too expensive to go to top resorts because of all the service charges and taxes.”

The US$6 green tax was announced in November last year with the tourism minister Ahmed Adeeb saying that the revenue generated from the tax will go into managing waste from local resorts and other islands.

Rising arrivals, rising costs

The tax is part of  new revenue raising measures outlined in the record MVR24.3 billion (US$1.5 billion) state budget for 2015, which also includes the addition of ten resorts to the current 109 registered facilities. These measures are anticipated to raise MVR3.4 billion (US$220 million) in revenue for the government.

The green tax will be introduced 11 months after the abolition of the US$8 per night bed tax, and one year after the hike in the Tourism Goods and Service Tax (T-GST) from 8 to 12 percent. Airport service tax was also raised from US$18 to US$25 in July 2014 for visitors leaving the country.

Maldives Association for Travel Agents and Tour Operators President Abdulla Ghiyas was reported as having told TTG that the resort contracts will be unaffected as the bed tax had been taken into account, though the opposition has previously called the levying of this and T-GST simultaneously as “double taxation” on the industry.

“Have a look at the TripAdvisor Forum,” Michelle Flake from Koamas Luxury Escapes told TTG. “I am sure people are moaning and saying it will be too expensive for them to come soon.”

After receiving more than one million tourists for the second consecutive year in 2014, the tourism ministry estimates that the Maldives will see 1.4 million tourist arrivals this year.

Speaking to Minivan News about the past year, however, Tourism Employee’s Association of Maldives Secretary General Mauroof Zakir said that, despite the increased arrivals, the tourism industry suffered as a whole in 2014.

“Total tourist arrivals have increased compared to the previous year. However, as arrivals from Europe and Russia decrease, less income is generated as the replacing Chinese visitors spend less and stay for lesser periods,” said Zakir.

Last year’s Maldives visitor survey in January 2014 appeared to confirm Zakir’s point, showing that Asian tourists stayed for shorter periods of 3 to 4 days while the average stay for European tourists was between 7 and 11 days.

According to the Tourism Yearbook 2014 – published by the tourism ministry – average duration of stay by tourists is declining, from 8.6 days in 2009 to 6.3 days in 2013.

The Chinese and Russian tourist markets are two of the fastest growing in the world, with arrivals increasing by an average of 54 and 10.7 percent, respectively, between 2009 and 2013.

Adeeb has acknowledged the negative impact of the falling Russian rouble on arrivals, saying that the Maldives must diversify its tourism markets as the international arena “heats up”.

Related to this story

1.4 million figure for 2014 tourist arrivals incorrect, says Tourism Minister

US$6 green tax to be introduced from November 2015, says tourism minister

President Yameen announces development of five resorts in Haa Dhaalu Atoll

Government decides to implement a ‘green tax’ on tourists


Tax rate on domestic air travel for locals reduced to 6 percent

Maldives Inland Revenue Authority (MIRA) will be charging the normal 6 percent tax on domestic travel instead of the 12 percent, aimed at tourists, from today.

A MIRA press statement read that the amendments to the 2011 tax act would come into effect starting December 1.  The amendment makes no changes to the requirement of foreign workers in the country to pay 12 percent T-GST on the domestic air travel.

According to the changes, employees would also be charged only 6 percent GST at staff shops in resorts, following changes to the law made in the Majlis last month.

Previously, former President Mohamed Nasheed had made remarks about the hike in T-GST from 8 to 12 percent, noting that a flight to the south of Maldives had become more expensive than a flight to India or Sri Lanka as a result.


Parliament passes amendment to exempt Maldivians from T-GST

Parliament today passed an amendment to the Goods and Services Tax Act to exempt domestic air travel and goods sold at shops in resorts, guesthouses, and hotels exclusively for staff from the Tourism Goods and Services Tax (T-GST).

The amendment submitted by Maldives Development Alliance MP Mohamed Ismail was passed unanimously with 72 votes in favour.

However, the amendment bill does not exempt foreign labourers and tourists from T-GST on domestic air travel or ticket prices.

Following ratification by the president, Maldivians would be charged a six percent GST on airfare.

A T-GST hike from eight to 12 percent – approved by parliament in February as part of revenue raising measures proposed by the government – came into effect on November 1.

Subsequently, local airlines Maldivian and Flyme imposed a 12 percent sales tax on ticket prices and increased airfare by about MVR32 per ticket.


US$6 green tax to be introduced from November 2015, says tourism minister

The new green tax for tourists will be introduced from November 2015 at a rate of US$6 per bed per night, Minister of Tourism Ahmed Adeeb has revealed.

Speaking at a press conference held by the cabinet’s Economic Council today, Abeeb said that guest houses would be exempt from paying the new tax in order to reduce the impact on small and medium businesses.

“Since 2013 the guest house venture has been on the rise. We do not want to hinder the development of these businesses so we have decided to exempt guest houses from paying the tax,” said Adeeb, addressing concerns raised by the opposition Maldivian Democratic Party (MDP) earlier in the day.

The introduction of the new tax is to come 11 months after the abolition of the bed-tax, which will continue to be charged at US$8 a night until the end of this month.

Some resort owners have suggested that the combination of the bed tax with the rise in T-GST to 12 percent this month has affected bookings, though Adeeb today vowed there would be no further increases in T-GST during the government’s current term.

The T-GST rise came after urging from the IMF, which has suggested that the previous rate of 8 percent was low for a tourism industry as profitable as the Maldives’.

Adeeb said today that the council does not believe the green tax will hinder the demand from tourists – especially from Europe – who will become “champions” of the Maldivian environment by paying the tax.

2013 saw a record 1.3 million tourists spend just over  7 million bed nights in the country, although the country’s macro economic stability has remained a concern.

The tourism minister has previously said that revenue generated from the new levy would be spent on resolving the waste management issues in the greater Malé region – an issue made more pressing with the Economic Council’s recent termination of the Tatwa waste management contract.

Adeeb also revealed the council’s plans to remove import duty on construction material needed for the refurbishment of resorts, thereby stimulating resort development which he said would provide numerous employment opportunities for the youth.

President Abdulla Yameen last week announced that five new resorts would begin construction in 2015 in the northern atoll of Haa Dhaalu, which currently has none in operation.

Also speaking at the press conference, Minister at the President’s Office Mohamed Hussain Shareef said  the government was seeking to begin the re-development of Ibrahim Nasir International Airport midway through next year.

“Beijing Urban Group and Maldives Airports Corporation Limited has finished the drawings of the airport and are in the process of submitting the proposal to China’s Exim bank in order to finance the project,” explained Shareef.

Shareef also re-iterated the government’s plans to start work on the proposed Malé-Hulhulé bridge in the year 2015, before opening the bridge in 2017.

“The bridge survey team is almost done with the feasibility study and it will be submitting its reports to the Chinese Government who will then finance the bridge through grant-aid and low interest loans,” said Shareef.

Agreements to develop the INIA and to promote the Malé-Hulhulé bridge were signed during Chinese President Xi Jinping’s visit to the Maldives as part of his South-Asian tour in September.

During his visit, President Xi also officially requested that the Maldives participate in China’s 21st Century Maritime Silk Route, before journeying to India as part of his tour of the region.

Shareef concluded the press conference by commenting on what the governing Progressive Party of Maldives has described as attempts by the opposition to spread misinformation regarding comments made by the foreign minister on Sino-Indian discussions about the silk road project.

After Dunya Maumoon’s comments to the Majlis last week appeared to suggest that Indian had discussed joining the project with President Xi, the Indian government released a statement strongly denying such talks had occurred.

Shareef warned the MDP – which has today announced its intention to table a no-confidence motion against the foreign minister – that it would have to answer to the international community which had been informed of its attempts to sow discord.


Bill proposed to exempt domestic air travel from T-GST

MPs today debated amendments submitted on behalf of the government by the Maldives Development Alliance (MDA) MP Mohamed Ismail to exempt domestic air travel or ticket prices from Tourism Goods and Services Tax (T-GST).

The amendments (Dhivehi) to the GST Act of 2011 also proposed exempting goods sold at shops in resorts, guesthouses, and hotels that are exclusively for staff from the 12 percent tax rate.

A T-GST hike from eight to 12 percent – approved by parliament in February as part of revenue raising measures proposed by the government – came into effect on November 1.

Subsequently, local airlines Maldivian and Flyme imposed a 12 percent sales tax on ticket prices and increased airfare by about MVR32 per ticket.

“Now a [ticket] to a flight to Addu has gotten more expensive than a flight to Colombo. This is not, in any situation, how it should be priced,” former President Mohamed Nasheed told local media following the tax rise.

Presenting the legislation at today’s sitting of parliament, MP Mohamed Ismail said the purpose of the amendment bill was to exempt Maldivians from the tax hike.

While the bill was submitted on October 22 before the T-GST rise came into force, the MP for Haa Alif Hoarafushi noted that its inclusion in the agenda was slightly delayed.

The bill also states that any visitor who enters the country on a tourist visa shall be considered a tourist.

If the bill is passed into law, the GST rate for domestic airfare would be six percent.

The Maldives Inland Revenue Authority (MIRA) had anticipated MVR34 million (US$) in additional income as a result of the tax hike.

All MPs who spoke during the preliminary debate were in favour of the revision and the T-GST exemption for domestic air travel.

However, opposition Maldivian Democratic Party (MDP) MPs criticised the majority party or ruling coalition for approving the tax hike in February without the exemption for locals.

As the bill would have to be reviewed by committee before it could be passed, MDP MP Ali Nizar said the government had ample time to amend the law before November.

Jumhooree Party MP Faisal Naseem also noted that MPs would have known in February that T-GST would be charged for domestic airfare and goods sold for tourism workers.

“What I want to note today is, would we not have to propose an amendment again for a six percent refund?” the MP for Kaashidhoo asked.

If MPs wished to reimburse locals for the six percent extra charge, Faisal suggested adding a provision in the amendment bill during the committee stage.

He also called on MPs to expedite the legislative process and pass the amendment as soon as possible.

Following the preliminary debate, the bill was accepted unanimously with 60 votes in favour and sent to the whole house committee.

Introduced in 2011, T-GST generated around MVR2 billion (US$129 million) between January and September this year – equal to just under 24 percent of all government revenue.


Government decides to implement a ‘green tax’ on tourists

Tourism minister Ahmed Adeeb has told local media that a bill detailing proposed ‘green tax’ for tourists will be sent to parliament this month.

“Levying this tax is necessary given Maldives’ fragile environment. Revenue generated from the tax will go into managing the waste from local resorts and other islands,” said Adeeb who also serves as the co- chair in the cabinet’s Economic Council.

The exact percentage to be levied will be decided after consultations with relevant stakeholders, he added.

Earlier this month, Adeeb said he would aim to resolve waste management issues within the next two years using state-owned companies, after announcing the termination of the deal with India based Tatva Global Renewable Energy.

Minister of Finance and Treasury Abdulla Jihad also spoke of the proposed green tax while submitting a record MVR24.3 billion (US$1.5 billion) state budget for parliamentary approval today.

Jihad noted that the tax will form part of revenue raising measures, which also include the addition of ten resorts to the current 112. The proposed changes are anticipated to raise MVR3.4 billion (US$220 million) in new revenue.

Levies on the tourism industry – which accounts indirectly for up to 90 percent of the country’s GDP – formed a major part of proposed revenue raising measures in 2014.

An IMF-recommended hike on Tourism Goods and Service Tax (T-GST) from eight to 12 percent was approved by parliament in February and came into force last Saturday (November 1), prompting concerns from industry insiders.

Speaking to Minivan News today, former Managing Director of Maldives Tourism Development Corporation (MTDC) Mohamed Matheen said that the budget issues could not be resolved without addressing the structural issues within the budget.

“The budget deficit cannot be resolved regardless of how the tax regime is set without addressing issues like the high recurrent expenditures of the government, which is a lot higher than the majority of the countries,” said Matheen.

One general manager from a prominent resort told Minivan News last weekend that bookings appeared to be down for November, with both guests and operators aware of the “double tax” as the T-GST increase combines with the bed tax – a measure also continued this year as a way to boost government coffers.

“November will be tough,” he explained. “Top end resorts will really feel this. There’s no way further increases could be stood.”

He also expressed concern that the resorts were being asked to carry the fiscal burden of the government’s failure to curb expenditure.

Former President Mohamed Nasheed has also criticised the hike in the T-GST saying that it would cause immense difficulties to the general public.

“Now a [ticket] to a flight to Addu has gotten more expensive than a flight to Colombo. This is not, in any situation, how it should be priced,” Nasheed told local media.


T-GST rises to 12 percent

A Tourism Goods and Service Tax (T-GST) hike from eight to 12 percent approved by parliament in February has come into force today.

The tax hike was approved as part of revenue raising measures proposed by the government to raise additional revenue anticipated in this year’s budget.

One general manager has from a prominent resort told Minivan News that bookings appeared to be down for the month of November, with both guests and operators aware of the “double tax” as the T-GST increase combines with the bed tax.

“November will be tough,” he explained. “Top end resorts will really feel this. There’s no way further increases could be stood.”

Representatives from the Maldives Association of Tourism Industry (MATI) have also opposed the continuation of the bed tax alongside the T-GST increase, though the IMF has suggested that a 12 percent tax rate on the Maldivian industry remains “quite low” due to its high rates of return.

Other measures included reintroducing the US$8 tourism bed tax, reversing import duty reductions, 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.

Introduced in 2011, T-GST generated around MVR2 billion (US$129 million) between January and September this year – equal to just under 24 percent of all government revenue.

In its latest quarterly economic bulletin, the Maldives Monetary Authority (MMA) warned that total revenue collected in 2014 could be lower than budgeted due to compromises by parliament in passing the revenue raising measures.

For example, initially the 2014 budget anticipated the implementation of Tourism Goods and Services Tax (T-GST) hike— from 8% to 12%—in July 2014 but it was delayed to November 2014,” the central bank explained.

“Similarly, the continuation of the Bed Tax was delayed by a month and it is to be discontinued after November 2014, as opposed to the anticipated collection of Bed Tax throughout the year.”

In addition, the MMA explained that payments for resort lease extension fees, which had been anticipated to be received in full under the proposed budget, were later revised to be paid in instalments over 18 months.

Finance Minister Abdulla Jihad told parliament’s public accounts committee last month that the revenue shortfall would amount to MVR1.5 billion. Consequently, the initially projected MVR1.3 billion deficit in this year’s record budget is now expected to rise to over MVR4 billion.

Last month, the finance ministry imposed cost cutting measures in a bid to rein in the ballooning budget deficit.

The parliamentary subcommittee that reviewed the revenue raising measures had recommended revising the government’s proposals following consultations with the MATI.

Appearing before the subcommittee, MATI Secretary General Ahmed Nazeer also questioned the practicality of collecting resort lease extension fees upfront.

Only 17 out of more than 100 resorts offered the opportunity by the administration of former President Mohamed Nasheed to extend leases with a lump sum payment were able to do so, Nazeer said.

Resort owners had amended their lease agreements to pay extension fees in installments during Dr Mohamed Waheed Hassan’s administration, Nazeer noted, and revising agreements for a third time could present legal challenges.

Speaking with Minivan News today, the anonymous GM suggested the government focus on its own austerity measures, or risk losing guests to more “cost-effective” destinations, though the IMF earlier this year had


Nasheed criticises indirect taxation following amendments to import duties

Former President Mohamed Nasheed has criticised the recent amendments to customs duties, arguing that a strong economy cannot be built upon regressive taxes.

“We have noticed that indirect taxes such as import duty have a very bad impact on the economy,” the acting president of the Maldivian Democratic Party (MDP) told local newspaper Haveeru.

“The tax that is being derived from the poorest man’s toothpaste is equal with the tax levied on the richest man’s toothpaste. We do not believe that this is a smart way of generating state income,” he said.

Nasheed’s comments followed the approval of amendments to the Import-Export Act which increased import duties on a range of goods as part of the current administration’s revenue raising measures.

He told local media yesterday that history had shown progressive taxation, with greater contribution from higher earners, was the best technique to raise state revenue.

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

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 are also set to be 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.

Nasheed suggested that progressive taxation such as the Business Profit Tax (BPT) – introduced during his presidency alongside Goods and Services Tax (GST) and Tourist-GST – would produce a more sustainable economy.

These three taxes were shown this week to have contributed to nearly three-quarters of the state’s revenue in the first quarter of the year, amounting to over MVR2 billion. The introduction of these taxes has seen state revenue quadruple since 2010.

The economic policies pursued during the MDP administration also included sweeping changes to the Import-Export Act, which included the removal of duty on a wide range of items.

The Maldives Customs Service meanwhile revealed last week that its revenue in March increased by 12 percent – to MVR 139.7 million – compared to the same period in 2013 on the back of a 30 percent increase in imports.

Exports, however, dropped by 65 percent last month compared to the same period last year, and imports increased by 11 percent compared to the first quarter of 2013.

The Maldives Monetary Authorities’ latest balance of payments forecasts estimated the current account deficit to have widened to US$562.5 million – representing 22% of GDP in 2014.

Other revenue raising measures to be implemented by the government include raising T-GST to 12 percent this coming November as well as the introduction of GST to telecommunications services from May 1.

Plans to increase Airport Service Charge from US$18 to US$25 appeared to be moving closer to realisation this week, with local media reporting that the measure had been approved my a Majlis committee.

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, which the government contends are necessary to finance development projects.

Recognising that the Maldives is in a “deep economic pit”, President Yameen vowed to slash state expenditure in order to improve government finances following his election victory last November.