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 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.


Maldives to ease trade barriers with India

The government will ease trade barriers with India to promote trade between the two countries and accelerate foreign investment. Foreign Minister Ahmed Shaheed is currently leading a delegation in India to facilitate trade.

Indian financial newspaper Business Standard claimed Indian companies, including Tata, Suzlon, GMR, Apollo Hospitals and Oberoi, could invest as much as US$1 billion in the Maldives and significantly boost the country’s economy.

The Standard also reported that the Maldives foreign ministry will increase the leasing periods for resort development to 50 years and reduce the base rent in a bid to promote foreign investment in the hospitality sector.

Ahmed Naseem, state minister for foreign affairs said “many items that are traded between countries in the South Asian Association for Regional Cooperation (SAARC) will have tariffs eased on them, and this will make trade between the countries easier.”

Indian High Commissioner to the Maldives, Dnyaneshwar Mulay, said such a move would benefit the Maldivian economy.

“The lower tariffs will make exports and imports cheaper and make the market more competitive,” he said, adding that such a deal would also encourage the Maldives to increase its own exports.