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