taxation – Minivan News

Government rules out supplementary budget to plug 2013 shortfall, commits to T-bill sales

Finance Minister Abdulla Jihad has said the government has overcome the need to issue a supplementary budget to plug a shortfall in state spending for the current year, relying instead on short-term treasury bills (T-bills) to carry over its debts.

The comments were made as the Ministry of Finance today confirmed it had been officially requested to present the proposed annual 2014 state budget to parliament on October 30, with work ongoing despite the challenges posed by the upcoming Eid holidays.

Jihad previously told Minivan News that despite anticipating parliament would need to approve a supplementary budget after state offices were found to have exhausted their recurrent expenditure for 2013 by April, the government was now instead relying on T-bills to balance outgoings.

The finance minister last month said that the Maldives was relying on 28 day T-bills to help “roll over” debt one month at a time after parliament had failed to approve a number of measures to try and increase state expenditure not included in the 2013 budget.

T-bills are sold by governments all over the world as a short-term debt obligation backed by sovereign states. In the Maldives, they have a maximum maturity of six months, in which time they must be repaid.

The present government’s reliance on T bills has been slammed by the opposition Maldivian Democratic Party (MDP), which has previously questioned why there had been an increased reliance on short-term financing considering total state revenue rose 16 percent over the 12 months up to July 2013.

Borrowing fears

The Finance Ministry claimed in August that it had managed to reduce state spending since 2012, despite the MMA raising fears that the current “beyond appropriate” levels of government expenditure was leading to a vicious cycle of borrowing.

Early last month, the government said it hoped to secure longer-term financing measures to cover the shortfall in annual revenue as the number of 28-day T-bills sold by the state almost doubled in July 2013 compared to the same period last year.

According to the Maldives Monetary Authority (MMA) monthly review for August 2013, sales of T-bills for July 2013 has risen by 95 percent year on year.

The MMA stated that there had been a 163 percent in 28 day T-bills by July 2013 compared to the same time last year, despite sales of T-bills with a maximum maturation period of three month and six months declining by 63 percent and 83 percent respectively.

Sales of T-bills were also up 35 percent for July 2013 over the previous month, according to the MMA’s figures.

Budget issues

Finance Minister Jihad told Minivan News earlier this year that the state’s increased reliance on T-bills between July 2012 and July 2013 reflected the difficulties faced by the government in trying to raise budgeted revenue during the period.

He added that with only “a few people” in the private sector now interested in purchasing the short-term debt obligation from the government, T-bills has been sold as part of wider investments made by the state through the country’s pension fund.

Parliament in April rejected government-sponsored legislation to raise the airport service charge to US$30, which was among a raft of measures proposed by the Finance Ministry in the estimated 2013 budget to raise MVR 1.8 billion (US$116 million) in new income.

Other proposed measures include hiking Tourism Goods and Services Tax (T-GST) to 15 percent from July 2013 onward, leasing 14 islands for resort development, introducing GST for telecom services as well as oil, and “selectively” reversing import duty reductions.

Opposition’s T-bill concerns

Mahmoud Razee, former Economic Development Minister under the previous government, claimed T-bills should only be used by the state to help cover its operational expenses, rather than serve as a long-term means of financing.

“With income tax revenue having increased according to the Maldives Inland Revenue Authority (MIRA), why have [T-bill sales] gone up? Under the MDP government we were using T-bills to meet our cash flow,” he said. “This had nothing to do with the fiscal deficit.”

Razee argued that while the former government had itself sought foreign loans to balance the financial deficit while in power, the administration of former President Mohamed Nasheed had worked to avoid relying on T-bills for longer-term financial concerns like balancing the national fiscal deficit.

“The moment T-bills are increased, this directly affects loans that banks are able to give to the private sector, leading to the cost of borrowing increasing,” he said.

Razee claimed that the MDP government had attempted to try and extend income tax reforms introduced during its time in office to further boost revenues – a plan he said was cut short by the controversial transfer of power on February 7, 2012.

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Gasim in “better position” than Yameen for election victory, JP claims

The Jumhoree Party (JP), led by business tycoon and MP Gasim Ibrahim, has this week expressed confidence it will finish above the Progressive Party of Maldives (PPM) in the first round of the upcoming presidential election – before securing a second round victory.

Speaking following the launch of the JP’s election manifesto, the party’s Policy Secretary Mohamed Ajmal said indicators like internal policy research had reaffirmed its supporters’ belief that MP Gasim was in a “better position” than PPM candidate Abdulla Yameen to secure the presidency.

The comments were made following the launch of the JP’s election manifesto, which places an emphasis on pre-school and university education, as well as introducing a so-called “holistic” taxation policy extending to individuals and businesses.

The PPM, formed by former autocratic President Maumoon Abdul Gayoom, has meanwhile maintained that MP Yameen and former President Mohamed Nasheed of the Maldivian Democratic Party (MDP), remain the only two candidates capable of winning the election – accusing Gasim of having to buy support in order to compete with them.

‘Jumhoree coalition’

Despite the claims, the JP has been working to consolidate its support base ahead of September’s poll, with the religious conservative Adhaalath Party (AP) and the Dhivehi Qaumee Party (DQP) last month leaving a coalition with President Dr Mohamed Waheed’s Gaumee Ithihaad Party (GIP) to instead back Gasim.

With voting expected to commence a month today, MP Gasim has claimed in local media that the JP had over 30,000 members when including applications waiting to be approved by the country’s Election Commission (EC).

JP Policy Secretary Ajmal said the membership numbers were reflective of campaign visits to islands across the country in recent months, which highlighted that Gasim was seen as a “man of the people” ahead of the election.

He added that the addition of other high-profile politicians like one time PPM Deputy Leader Umar Naseer to the JP further highlighted the growing support for Gasim’s candidacy.

Alongside this support, Ajmal said he remained confident that the focus of the JP manifesto on issues such as tax reform would directly address key voter concerns about the current state of the economy.

Among these proposed reforms is a “holistic” approach to tax that would extend taxation beyond the Tourism Goods and Services Tax (T-GST) and general GST introduced and expanded under the former government to include capital gains tax and income tax.

“With taxation, we hope to take a holistic approach to the bare minimum policy of tax we have with T-GST and GST,” Ajmal said.

He added that a JP government would also work to comply with International Monetary Funds (IMF) recommendations to balance the nation’s budget deficit. The IMF earlier this year expressed concern that without raising revenue and cutting expenditures, the Maldives risked exhausting its international reserves and sparking an economic crisis.

Ajmal said that while there were many ways to try and curb the budget deficit, the JP would favour what he called a “optimistic approach”.

“There is not a problem with raising revenue in the Maldives, the problem is in fact related to a lack of infrastructure,” he said. “The wealthy are not being taxed properly and there is an issue with the distribution of wealth in the nation.”

Ajmal claimed that with an estimated 60 to 70 percent of national income now being spent by the government on recurrent expenditure, the JP in government would look to curb the amount of borrowing undertaken by the state.

He claimed one solution would be reducing the state’s reliance on treasury bills by securing “low interest” development loans to try and reduce outgoing payments on national borrowing. The spokesperson was not drawn on whether cuts would need to be made to the country’s civil service.

The JP meanwhile pledged that it would not be increasing the size of the country’s civil service as part of aims to curb recurrent expenditure to about 40 percent, focusing instead on investment in local infrastructure to try and raise revenue through the private sector.

With the JP presently serving within the coalition government of President Waheed following the controversial transfer of power in February 2012, Ajmal said he believed voters saw Gasim as an “individual” candidate, and not someone who would continue the economic policies of the present administration.

“Mr Gasim has always supported all governments, apart from the previous administration when he was betrayed by [former President] Mohamed Nasheed. We as a party are always concerned for the people,” he said. “We believe that voters don’t see us as part of the current government.”

Ajmal said that the party believed Gasim was an individual who voters would understand did not have the powers alone to affect the financial policy of the present government.

“Mr Gasim has supplied some US$10 million to US$12 million though the Villa Foundation on philanthropic matters,” he said.

Ajmal claimed that the ‘Jumhoree coalition’ backing Gasim election had now allowed the JP to position themselves as the “main alternative” to former President Nasheed for all voters wishing to oppose him.

JP coalition “no threat”: PPM

Ajmal’s claims were rejected by PPM MP Ahmed Nihan, who today dismissed any notion that the coalition backing Gasim’s presidency could pose a threat to his own party’s election campaign.

He added that the PPM was certain the presidency would be won by either its own candidate in Yameen or former President Nasheed.

Addressing the members of the ‘Jumhoree coalition’ backing Gasim, Nihan accused the religious conservative Adhalaath Party in particular of having “disintegrated” and no longer resembling the political party it was formed as in 2005.

“In 2005, soon after the election, [the AP] has huge support , but soon after they sold their beliefs to many parties including the MDP,” he alleged.

“Maybe tomorrow they will come knocking on our door,” Nihan added of the party.

As a further contrast to the JP, Nihan argued that only the PPM and MDP had supporters and activists working across islands all over the country that were fully “engaged” in election campaigning and making banners, sometimes at their own expense.

He claimed that during the party’s recent campaign tours, the PPM had not seen any similar support for Gasim, the JP or his coalition.

“[The JP] does not have campaigners all over the country. Gasim has had to pay people to work for him, where as we do not have to pay for support,” Nihan said.

Flying the flag

Taking the example of his own constituency in Vilimale’, Nihan claimed that Gasim had brought supporters across from the southerly Addu Atoll to come and put up banners “bought from China”, 60 percent of which he alleged had been put up across the one island.

The flags are said to have been set up in such significant quantities that one Vilimale’ resident told Minivan News: “On some roads, I can’t see the sky.”

Similar displays of flags and party colours have in recent months begun appearing across the capital of Male’, even resulting in a so-called ‘paint war’ between rival PPM and MDP supporters in June.

However, Nihan claimed that majority of flags and banners produced by the PPM had been handmade by local supporters, reflecting what he said highlighted the overriding popularity of the party in Maldivian politics.

“On [Vilimale’] we don’t see the support for Gasim, but the flags are certainly there,” he said.

Nihan agreed that Gasim did have “loyal” support in parts of the country, but said it would not be enough to challenge for a top two place during national polls.

“I express my gratitude to Gasim as a philanthropist, but his coalition partners will not provide the level of support we have,” he said. “He is spending millions on his campaign.”

Nihan was also critical of the JP’s proposed reforms to taxation, arguing that Gasim as both a parliamentarian and party leader had not previously advocated for increased taxation.

He accepted that before the foundation of the PPM, the majority of the party’s MPs – then belonging to the Dhivehi Rayithunge Party (DRP) before a bitter split – had ultimately supported the introduction of taxation despite initial reservations.

Nihan said that the party’s initial reservations were based on the timing of introducing such taxation starting from 2011, adding that PPM candidate Yameen did support the introduction of tax despite wishing the matter had been handled differently.

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President signs GST bill into law

President Mohamed Nasheed has ratified the “Goods and Services Tax Bill” (GST), which was passed at Parliament’s 34th meeting of the term last Monday. The President signed the bill into law at a function on Fuvahmulah today.

The GST bill was published today in the government’s gazette.

The tax bill is divided by type of sale. Sales are defined as either tourism goods and services, or goods and services for sectors other than tourism.

The points addressed by the GST bill include collection, exemptions, duration of taxation, methods of calculation, and registration of taxable activities.

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Tourism magnates endorse proposed economic reforms

Prominent businessmen and magnates of the tourism industry endorsed the government’s economic reform agenda and introduction of direct taxation last night.

Speaking at a launching ceremony for the “Fiscal and Economic Reform Programme,” Mohamed Umar Manik, chairman of the Maldives Association of the Tourism Industry (MATI), observed that a sustainable source of government revenue was necessary for providing public goods and services.

“Today we have democracy in our country, but democracy can only be strengthened if we are able to deliver,” said the Chairman of Universal Enterprises. “To do this, our government must have sources of income. A detailed reform agenda has been proposed for this. In my view, it is an ideal reform programme.”

Manik congratulated President Mohamed Nasheed and “those who framed the reform agenda.”

Following consultation with the government over the proposed taxes, MATI said in a statement earlier this week that the absence of a taxation system in the country “similar to tax regimes successfully implemented in other countries” was a serious impediment to development and economic growth.

Old ways of thinking

Preceding the MATI chairman, Mohamed Waheed Deen, philanthropist and owner of Bandos Island Resort, argued in an impassioned speech that a taxation system was essential for democracy to deliver rising standards of living.

“This should have been done and finished 30, 40 or 50 years ago,” he said. “I sincerely thank our young President for beginning this effort today.”

A taxation system had to be introduced “because we are using the people’s property,” Deen contended.

“How can I say that I own Bandos?” he said. “It is not mine. It belongs to the Maldivian people.”

Taxation was the means for a more equitable distribution of wealth, Deen said: “Who wouldn’t want to send their child abroad for higher education? But can we facilitate it for them today?”

The government’s economic reform programme was necessary because “we do not want to keep the gap between rich and poor in this country anymore,” Deen asserted.

“What is the main reason a country becomes impoverished?” he asked. “I believe that one of the main reasons is refusal to tell the people the truth by many successive governments, many kings, until we have come to this point.”

In the Maldives’ long history, Deen continued, the public were indoctrinated to not criticise the government and given to understand that “only a particular group, from a particular family, could rule.”

Deen speculated that “the biggest challenge” the government’s economic reform agenda would face will be “changing people’s mentality.”

“This is the biggest problem facing our country today: [one side says] ‘everything is going right’ [while the other says] ‘nothing is going right,’” he explained. “So we have to educate our people, especially the councils.”

Deen also cautioned against unprincipled opposition to the government: “We could stay angry, hateful and disapproving and say ‘go on, run the government’ but sadly – remember this well – any harm this government suffers, the people will suffer many times over.”

Waheed Deen began his remarks by quoting the Quran 3:26: “O Allah. Lord of Power (And Rule), Thou giveth power to whom Thou please, and Thou strip off power from whom Thou please: Thou endow with honour whom Thou please, and Thou bringeth low whom Thou please: In Thy hand is all good. Verily, over all things Thou hast power.”

“Fruits of freedom”

MATI Secretary-General ‘Sim’ Ibrahim Mohamed meanwhile concurred that Maldivians could only “taste the fruits of political freedom” by liberalising and modernising the economy.

Following graduation from the ranks of the Least Developed Countries (LDCs), said Sim, the country could no longer rely on loans and foreign aid.

“In a fundamental sense, taxes are what the people give to the government they elected to manage their affairs,” he said.

Contrary to popular opinion, Sim continued, MATI had been advocating a taxation system as the organisation believed a sound fiscal policy was essential for “day-to-day planning of business matters as well as national affairs.”

In addition to fiscal responsibility, he added, new legislation and strengthening of the judicial system was also needed to foster investor confidence while stalled development of new resorts should be restarted to spur employment and private sector growth.

Sim concluded his remarks by appealing to “everyone who has to pay taxes, please pay taxes.”

“Bold initiative”

In his speech, Sunland Travels Director Hussain Hilmy reiterated that the Maldives’ “economic policy and legal framework needs to undergo modernisation and reform.”

“We in the business community welcome the bold initiative being undertaken by your administration to carry out a programme of comprehensive economic and fiscal reform,” Hilmy said.

He added that businesses were “delighted” with the government’s policy of a “shift away from import duties as a major source of government revenue.”

Hilmy observed that for successful tax administration, “transparency, accountability, predictability and effective combating of corruption” were necessary “preconditions.”

While the local tourism industry “has been the main engine of growth in the Maldivian economy for the last 40 years or so,” Hilmy warned that “tourism as we all know is an extremely volatile industry subject to sudden shocks and highly sensitive to fluctuations in global economic conditions.”

He suggested that a successful tax system should therefore “ensure the competitiveness of Maldivian tourism in the global market place.”

“We in the tourism industry also welcome your efforts to reduce public expenditure and wastage and create a more efficient and lean government,” he continued. “I can assure that lest there be any doubt that there is full confidence on the part of the tourism industry in the proposed reform programme and we have every confidence that this programme will be able to deliver the kind of success that we all wish and the kind of prosperity that we all are looking for.”

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Taxation is allowed “under conditions”, says Adhaalath Party

Adhaalath Party has today claimed that taxation us allowed in Islam but “under conditions”, stating that there were “some issues” with proposed taxation regulation in the Maldives.

In a press release issued today detailing the party’s views on taxation, the Adhaalath Party said that some scholars believed that taxation was haram and some that it was was halal.

The party said that according to Islamic jurisprudence and economists, tax was something withdrawn from citizens without their consent and without specific profit in return.

Taxation would be allowed ‘’only in exceptional situations and it has to be stopped when the situation returns to normal’’, the party said.

‘’Thinking of taxation economically, it could be taken from the people permanently as a source of income to run the state, but under Islam tax can be taken if the state reaches a certain situation,’’ the Adhaalath Party said.

The Hanafi, Maliki, hanbali and Shafi’e sects of Islam allowed for taxation, said the Adhaalath Party, adding that there were scholars who believed that taxation was haram because it was something taken by force.

The party acknowledged that it would be “very difficult” to cover the expenditure of the state only by using the amount the state received through zakat.

However, the party urged that any money earned by taxation was to be shared justly and divided to fulfill the needs of all citizens.

‘’A tax has to be taken from the amount left after fulfilling the basic needs of the tax payers,’’ the party said. ‘’If there was nothing left after completing their basic needs, tax should not be taken from them.’’

Finance Minister Ahmed Inaz has previously stated that the proposed income tax will only affect those earning more than Rf 30,000 (US$2000) a month.

The Adhaalath Party claimed the Import Duty tax had to be stopped and said it would be more beneficial to replace this with a business profit tax, as this would be collected after the business sold the product and not before.

‘’It is a burden for small and medium businesses to pay a heavy import duty before a product has been sold,’’ the Adhaalath Party said.

The party also called on the government to abolish “useless political appointees”and to “introduce a Zakat Act”.

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Islamic Ministry, MDP religious council condemns Salaf’s taxation fatwa

Religious scholars of different political allegiances have moved to refute and condemn NGO Jammiyathul Salaf’s claim earlier this week that taxation is haram (forbidden) in Islam.

Deputy Islamic Minister Sheikh Mohamed Farooq told local media that there was no religious grounds to declare taxation prohibited.

“When you say something is forbidden in religion, it should be clear under what principle or rationale that it is forbidden,” he explained to newspaper Haveeru. “You can’t just declare something forbidden on a whim. You cannot say something is forbidden when it is not clearly and definitely forbidden.”

He added that Zakat (alms for the poor) were being collected as before and old forms of taxation, such as varuvaa and import duties were not prohibited in Islam either.

Sheikh Farooq condemned the issuance of such fatwas (religious edicts) “without considering” either its validity or social impact.

Meanwhile the ruling Maldivian Democratic Party’s (MDP) religious council condemned Salaf’s claims as an attempt to mislead the public over taxation.

“Human beings cannot forbid something Allah has allowed or allow something Allah has forbidden,” the council’s chair al-Hafiz Ahmed Zaki told the party’s website.

Hafiz Zaki explained that Islam specified steps to be followed before religious judgments or rulings could be made: “One cannot just arbitrarily declare something forbidden,” he said.

Zaki warned that such fatwas could lead to civil unrest and social divisions over religious issues. He said that Islam was a religion of moderation that did not encourage extreme actions.

Zaki urged the public and businessmen to clear any doubts with the concerned authorities instead of “listening to press releases issued by individuals soaked in self-interest.”

Meanwhile Adhaalath party spokesperson Sheikh Mohamed Shaheem Ali Saeed told Miadhu newspaper that taxation was practiced in many Islamic countries while there was consensus among scholars that it was not prohibited.

“There are narrations that have reached us that tax was taken by the state during the time of Caliph Umar. He collected tax from wealth,” he said.

Opposition Dhivehi Rayyithunge Party (DRP) MP Afrashim Ali, chair of the party’s religious council, meanwhile told private broadcaster DhiFM that there was no grounds to declare taxation forbidden in Islam.

However NGO Salaf insisted in its press release Monday that, “Without doubt, using a person’s property or profiting from the property without the consent of the owner is haram in Islam. Only the compulsory Zakat (alms for the poor) portion can be taxed from a Muslim’s property.”

The religious NGO contended that “formulating a law and taking people’s property whatever name it is done under is for a certainty haram.”

“Jamiyyathul Salaf would remind the Speaker of Parliament and all MPs that those who formulate such laws and those who assist them will without a doubt have to bear responsibility before Almighty Allah,” the Salaf statement warned.

It adds that there is consensus in the Islamic ummah (community) that “stealing property by compulsion with laws on taxes, duties and pension imposed on a Muslim’s property is definitely haram.”

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MIRA concedes profit tax challenges following door-to-door push

The Maldives Inland Revenue Authority (MIRA) has taken a door-to-door approach in trying to prepare Maldivian enterprises for the introduction of a new Business Profit Tax (BPT) that comes into effect on July 18. MIRA says informing and registering every national enterprise in the country under the scheme will be a considerable challenge.

The BPT is to be charged to all businesses operating in the Maldives,that makes a profit of more then Rf500,000 (US $32,425). The tax will be a first for companies operating in the Maldives, a country that launched a similar 3.5 percent Tourism Goods and Services Tax on all travel industry income as of January 1 this year.

Business owners and industry representatives, while said to generally welcome direct revenue in the country, have called for a gradual introduction of financial reforms like the BPT, which are being sought by the government to balance national budget deficits and protect smaller enterprises.

Under the present BPT system, businesses that make a profit of more than Rf500,000 (US$32,425) will be asked to pay 15 percent of their earnings to the state. This sum will effectively rule out small businesses operated by individuals and places like corner shops that mainly caters to the local residents from having to pay BPT.

Moomina Abdul Sattar, 49, who runs a small tailor service, is one such businesswoman.

“I don’t have to pay the BPT tax; it is applicable only for those who make a profit of more than Mrf 30,000 (US $ 1945) a month,” she said.

Sattar added that she had previously attended an information session held by MIRA and was not therefore concerned about the tax as it does not affect her operations.

“My income per month is around Mrf 15,000 (US $ 973), from this I have to pay the salary of my three tailors,” she said.

Nonetheless, Sattar added that she still wasn’t aware that registration of her business was required by MIRA, even after attending the meeting.

For other businesses in the country, beyond the registration process itself, BPT is still expected to provide a significant challenge, at least in the short-term.

“We are not fully ready for BPT, but we are taking it positively,” said Ibrahim Hameez, Managing Director of Ryan Pvt Ltd. A design consultancy firm, Ryan has about 40 employees and would be seen as a medium and growing business.

“A lot of things that affect businesses were introduced this year, pension scheme, BPT, Income tax,” he said.

Hameez added that it was the timing of the introduction of taxes that posed a problem. “If we had known one year in advance, it would have been better. At the end of last year, we had not foreseen and planned for all these expenses in our cash flow for this year.”

The BPT Act was published in the government Gazette on 18^th January, with the tax to come into effect 6 months from the date of publication.

Despite the problem of timing Hameez believes taxation is a good thing. “BPT is going to be tough to adjust to, but we can and we will.”

Business of all sizes

As part of the act’s requirements, businesses of all sizes, including small and medium enterpises have to be registered with MIRA. This is a first for the Maldives, where small businesses run from home have generally not had to register themselves in the country.

MIRA says they are having great success in their door to door campaign to spread awareness.

“The response from the public has exceeded our expectations, people are very cooperative and even fill up the forms for registration on the spot most of the time” said Fathimath Rasheeda, Director of Tax Payer Education and Facilities for MIRA.

Landlords had also previously been exempt from having to register their operations or interests. It is these type of earners that Rasheeda has said have been the target audience for its door-to-door campaign.

“As a society we don’t tend to think that renting places, giving tuition, or selling sliced arecanuts are doing businesses,” she said.

Until this month, individuals or partnerships running small businesses like making short eats or cakes from their homes had only been required to get permission from the Ministry of Health to operate. Similarly, anyone renting accommodation, no matter the size, had not been required to register their property unless the place in question was to be used as a shop.

“Even a person renting out one room for Mrf 2000 (US $130) or teaching a small Quran class should register. But we will be taxing only those who earn more than 500,000 (US $ 32425) annually as profit,” said Rasheeda.

Challenges and Penalties

Alongside businesses, MIRA also has its own concerns over such a large scale operation being conducted for the first time.

“This is a big challenge for us also, as this is the first time a lot of businesses in Maldives would be registered,” she said.

MIRA’s 70 staff will be participating in an awareness campaign set for next Saturday. While next week the campaign will be taken to the islands.

“Due to lack of resources we cannot cover all the islands, but the city and island councils have been very helpful and have helped register the businesses in the islands,” Rasheeda added.

Among the challenges faced by MIRA will be taxing businesses that had never before declared their revenues publicly.

In addressing this potential difficulty, Rasheeda added that the BPT would operate like taxation systems in most other countries, where “individuals and businesses have to declare on their own the profits they make.”

The audit department of MIRA is expected to conduct a risk analysis to prioritize the first businesses it will audit to ensure the system is being adhered to.

“We hope to audit all the businesses within a five year period. Those businesses and individuals eligible to pay taxes will be asked to file a tax return annually,” Rasheeda added.

The penalties for enterprises omitting or filing false tax returns will include fines of up to Rf100,000 (US$6,485), six months to two years of house arrest and imprisonment or banishment, as per the BPT act. Rasheeda added that “if businesses or individuals fail to pay their taxes, aside from the wide ranging penalties, we can also seize their property in order to get the amount owed to the authority.”

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President talks business tax increases as part of economic reform plans

President Mohamed Nasheed has pledged further economic reforms including the planned implementation of a general business profit tax in July and the possible increase of the Tourism Goods and Services Tax (GST) from six percent to 3.5 percent.

Speaking yesterday during his weekly radio address, the president claimed that serious reorganisation of state finances was needed as the Maldives graduates from the UN’s list of nations with Least Developed Country status.

This reorganization strategy includes a managed float of the rufiyaa to effectively devalue the currency against the US dollar . The move was designed to try and allow the local currency to be traded within 20 percent of the pegged rate of Rf12.85 – a decision that has led to ongoing protests in Male’, said by organisers to be focused on escalating living costs.

“Reducing public expenditure and increasing state revenue to reduce budget deficit; stopping money printing to prevent devaluation of currency due to increased supply; and corporatising government services to increase participation of efficient private parties,” were outlined by the president as the government’s key aims for the economy.

In order to meet these goals, Nasheed claimed that the government would look to begin collecting business profit tax from the private sector on July 18 as well as trying to impose a minimum wage for local people.

In addition, the president also claimed that he was considering increasing the Tourism Goods and Services Tax, which was first implemented as of January 1 this year, to six percent from the introductory rate of 3.5 percent.

Criticising national spending policies under former President Maumoon Abdul Gayoom, Nasheed claimed that his government had reduced a budget deficit that stood at about 30 percent of the nation’s GDP back in 2008 to just above 10 percent at present.

While generally supporting initiatives to reduce costs that have led to ongoing public protests in the country, the Treasurer of The Maldives National Chamber of Commerce and Industry (MNCCI), Ahmed Adheeb Abdul Gafoor, said that the the planned addition of a minimum wage and a Goods and Services Tax (GST) on all enterprises operating in the country needed to be gradually implemented.

Speaking earlier this month, Abdul Gafoor claimed that gradual introduction of taxes would be vital to ensure the nation’s fledgling economy can cope with any potential changes.

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Focus on “direct revenue” needed as state earnings increase, says Razee

The country’s Economic Development Minister has called for a greater focus on introducing new “direct revenue” streams like taxation to the country to try and balance national income even as the government reports an increase in income.

Mahmood Razee said he believed that increased government earnings between January and March 2011 should be seen as an encouraging development in the country for both public and private finance, with initiatives like the tourism Goods and Services Tax (GST) introduced in January expected to be rolled out across other national industries.

However, he stressed that more cash generating measures would be needed by the state to balance the country’s books.

The claims were made as the Maldives Inland Revenue Authority (MIRA) recorded a 59 percent increase in government first quarter income on the back of new initiatives like the tourism GST.

The Maldives has come under huge pressure in recent years from financial institutions like the International Monetary Fund (IMF) to try and reduce extensive state spending, resulting in a large deficit between income and expenditure that the government’s Finance Ministry have claimed to be trying to address.

While preliminary figures had pegged the 2010 fiscal deficit at 17.75 percent, “financing information points to a deficit of around 20-21 percent of GDP”, down from 29 percent in 2009, the IMF has reported.

Razee claimed that the increases in government income was a step towards more balanced expenditure as the MIRA revealed that Rf947m was generated during the first quarter of 2011. These earnings were up by 21 percent on predicted incomes for the year and 59 percent over revenues taken during the same period in 2010. However, earnings from the tourism GST introduced from January 2011 onwards were not in place back in 2010.

Tax revenue over the quarter rose by 81 percent, aided mainly by the tourism GST, which generated an estimated Rf351m in February and March alone, up one percent on expected earnings, according to the MIRA.

Of these tax earnings, the financial report stated that Rf82m had been collected in the local currency, while the remaining Rf864m was collected in US dollars (US$67m).

The MIRA report added that government earnings from initiatives such as the switch of a tourism lease rent to a tourism land rent had seen non-tax revenue increase by 46 percent over the period, despite a 28 percent decline in royalties after recent amendments to the Fisheries Sector.

“With the change from tourism lease rent to tourism land rent, the revenue from [this amendment] has increased by 7 percent,” the report stated. “Additional revenue of Rf 146m has been received during this quarter from Resort Lease Period Extension following to the second amendment made to the Tourism Act.”

More Work

According to Razee, despite the increased revenue, more sources of income, particularly in terms of foreign currency, were needed to offset budgetary concerns. This apparent need comes in light of a lack of US dollars being made available through Maldivian banks that this month saw a long standing Rf12.85 peg on the exchange rate controversially being amended within 20 percent above or below the figure.

“The solution is to look to more direct forms of revenue like the general GST, though there is still some way to go with work in trying to balance revenue with the expenditure side,” he said. “Additionally, when we look to taking [state] loans they will need to be able to build greater productivity and more investment into the economy.”

With the Finance Ministry aiming to introduce a general GST system beyond services and goods provided to holidaymakers, Razee believed that government’s recent experience with taxing tourism income had helped bring a much great understanding of the true state of the country’s finances.

“Obviously with the GST in place, we understand much better the exact tourism receipts being generated,” he said. “Without them, it was much harder to fully understand the revenues being generated.

Razee claimed that the implementation of the general GST tax would also require the private sector to be more “professional” in their accounting, in theory ensuring wider industry benefits in the long-term.

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