TGST – Minivan News

Revenue collection in February 17 percent below forecast, reveals MIRA

The Maldives Inland Revenue Authority (MIRA) collected MVR905.7 million in February, 84.7 percent more than previous month but 17.6 percent below income forecasts.

MIRA explained in a press statement last week that income from Tourism Goods and Service Tax (T-GST) increased by 32.7 % following a T-GST hike from eight to 12 percent in November whist GST revenue also increased by 18.9 percent.

Revenue from Business Profit Tax (BPT) meanwhile rose 232 percent from January as the deadline for the second interim payment was moved to February 1 as January 31 fell on a weekend.

“The collection for February 2015 is 17.6 percent less than the forecasted amount for this month,” MIRA noted.

“The reasons for this includes the decrease in tourism related revenues by 17 percent as tourist arrivals did not meet expectations, and the collection of GST in March as the deadline was moved to 1 March because 28 February fell on a weekend.”

A total of MVR190.17 million was also collected as lease period extension fees from resorts whilst tourism lease rent amounted to MVR34.42 million.

The total revenue collected in the first two months of January amounted to MVR2.45 billion, 36.2 percent higher than the same period last year.

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Majlis will reconvene to discuss revenue raising measures

The People’s Majlis has agreed to return from recess on Tuesday (January 14) in order to discuss urgent amendments to tax and tourism legislation that will enable the government to raise vital revenue.

Local media has reported that the session will begin at 9am.

President Abdulla Yameen last week called upon the legislature to reassemble in order to facilitate the record MVR17.95 billion budget passed last month – of which MVR3 billion is reliant on new revenue raising measures.

“God willing, when the revenue related bills are passed next week the projects in atolls will speed up”, he said.

The measures include hiking Tourism GST from 8 percent to 12 percent, revising import duties, continuing tourism bed tax for one more year, raising airport departure charge for foreign passengers from US$18 to US$25, leasing 12 islands for resort development, introducing GST for telecommunication services, and obtaining resort lease payments as a lump sum.

Following the Majlis’s failure to extend tourism bed tax before the start of the current recess, Finance Minister Abdulla Jihad told local media that the resulting losses to state revenue would be MVR100 million a month.

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Discontinued tourism bed tax will cost state 10 percent of revenue

The People’s Majlis’ failure to extend the country’s tourism bed tax before recess will result in losses of MVR100 million a month, the Finance Minister is reported to have told local media.

As of the start of 2014, the tourism bed tax taken under the Maldives Tourism Act of 1999 will be discontinued because of a deadline added to the act during its second amendment in 2010.

Article 35 – D of the amended act states that within three years of taking TGST (Tourism General Services Tax), the US$8 tourism bed tax per person per night shall be discontinued.

As the TGST was introduced with the year 2011, the current deadline came to pass at 12am this morning.

Quoting the Deputy Commissioner General of Maldives Inland Revenue Authority (MIRA) Hassan Zareer ‘Haveeru‘ has reported that this will result in a reduction of MVR1 billion – or ten percent of annual state revenue. He said the issue had been brought to the government’s attention. Minister of Finance Abdulla Jihad was quoted as saying that this change would incur a loss of approximately MVR100 million per month from the state cash flow.

On 9 December 2013 MP Abdul Aziz Jamal Abubakr, proposed an amendment to the act – on behalf of the government – extending the deadline for another year. However, it was not passed when the Majlis went to recess with the final sitting of the third session on 30 December 2013. The next session of the Majlis will begin on 1 March 2014.

MIRA statistics reveal that from January – November 2013 the tourism tax accounted for 9.6% (MVR787,340,577) of the total revenue collected by the authority. Within the same period tourism land rents contributed 9.8%, and TGST 27.3% of the total revenue.

On 29 December the Majlis passed a MVR17.95 billion (US$1.16 billion) national budget, despite concerns from the public and various organisations. The central bank Maldives Monetary Authority (MMA) warned that if proposed revenue raising measures in it were not implemented, the budget could not cater for even the recurrent expenditure. The authority anticipates that the resulting budget deficit for 2014 could potentially increase from MVR886.6 million to 4.4 billion (11% of GDP).

The International Monetary Fund (IMF) also proposed the implementation of a number of measures to raise revenue and reduce spending.

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Government calls for immediate Tourism GST increase to 15 percent

The government has submitted a bill to parliament calling for the Tourism Goods and Services Tax (T-GST) to be increased from 8 to 15 percent, effective immediately.

The bill was submitted by Dhivehi Qaumee Party (DQP) MP Riyaz Rasheed last week on behalf of the government.

A T-GST of 3.5 percent was first pushed through parliament by the former government in 2011, with planned increases to 6 percent in 2012 and the current 8 percent in 2013.

Prior to the introduction of the T-GST, the primary sources of state income from the tourism sector included resort rents, import duties, and a flat eight dollar a night ‘bed tax’.

During the first month following the introduction of the T-GST, the government collected US$7.2 million from 800 of the newly registered 871 tax papers, a figure that revealed the Maldives had been underestimating the total size of its main industry by a factor of three.

Economic crisis

The proposal to increase the tax comes as the Maldives faces increasingly dire economic circumstances.

Finance Minister Abdulla Jihad revealed in April that the government had exhausted its annual budget for recurrent expenditure (including salaries, allowances and administration costs) in the first quarter of 2013, and announced the suspension of all development projects.

The State Bank of India’s refusal to roll over loans at the start of the year has seen central bank reserves at the Maldives Monetary Authority (MMA) “dwindle to critical levels”, as noted by the World Bank, to barely a month’s worth of imports.

The State Electric Company (STELCO) – the country’s main supplier of electricity to inhabited islands – meanwhile revealed this week that the government had failed to pay electricity bills to the tune of MVR 543 million (US$35.2 million), and warned Parliament’s Public Accounts Committee in a letter that it faced cash flow problems and an inability to roll out new projects as a result.

T-GST rise contentious

Tourism industry figures have previously warned that a sudden increase in T-GST would have an immediate effect on the industry’s bottom line, as many resorts are locked into year-long supply and pricing agreements with tour operators.

An overnight near-doubling of the tax to 15 percent would have “serious ramifications on tourism and the Maldivian economy,” warned one resort manager.

“Most wholesalers will not accept price increases mid-contract irrespective of what clauses we put in a contract, as laws within the EU prevent this. Hence, this will have to be absorbed by the resorts,” he explained.

“I am aware that many resorts are struggling financially and this may be enough to put them over the edge. It will be very difficult to attract much needed foreign investment when the government continues to give these signals,” he added. “Why hamper and reduce demand to a destination that is already struggling to attract its core and traditional markets?”

The resort manager said that it was unreasonable to expect the resort industry to foot the bill for the state’s financial irresponsibility, “considering there have been limited efforts within the government to reduce its expenses. [The proposed tax increase] is short term thinking that will lead to a major default within the Maldivian economy and industry, if this proceeds.”

“What continues is a large bureaucracy that makes it as difficult as possible for tourism to provide high end service to its guests in order to maintain our positioning [in the market],” he observed.

“What is basically required is that these slow and lethargic government departments to go through a productivity and efficiency program. Make the processes more efficient, make civil servants accountable for productivity targets, reduce the government workforce and increase the percentage of Maldivian workers in resorts,” the manager suggested.

The issue here is that the resorts will need to cut costs and increase efficiency to counteract this. This may hamper guest service, product enhancements and refurbishment, and staff benefits which is again detrimental to the industry as a whole. The Maldives is a premium destination with premium levels of service and this tax increase would hamper this positioning. The Maldivian people will need to expect cost cutting and in some aspects retrenchments.”

New tax fatwa

Prior to the submission of the government’s proposed increase to the T-GST, local media reported that the Fiqh Academy had issued a fatwa (an Islamic ruling) prohibiting the government from levying taxes of any sort except under exceptional conditions.

Announcing the Fiqh Academy’s ruling in a statement on May 22, the Islamic Ministry noted that taxation was only permitted under Islam in certain circumstances.

“Tax can be taken from citizens to fulfill their basic needs, and only up to the amount required to fulfill these needs in cases where the state does not have enough money [for this],” the statement read.

According to local media, the fatwa requires that any tax money collected be “invested fairly and according to Islamic principles”.

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Revenues for June lower than expected: MIRA

A fall in GST revenue and tourism land rents is to blame for lower than expected revenues in June, the Maldives Inland Revenue Authority (MIRA) has said.

Revenues for June 2012 still increased 11 percent on the corresponding period for 2011, however this was 10 percent lower than projected, MIRA stated, partly due to a shift in payment deadline to July 1 for the land rents.

Total revenue collected for 2012 so far is Rf 3.5 billion (US$227 million), MIRA said in its June report, a 59.1 percent increase for the same period in 2011.

31.5 percent of the total revenue was received from Tourism Land Rent, whilst 15.2 percent, 12.5 percent and 12.5 percent represents revenue collected from GST (Tourism Sector), Bank Profit Tax and GST (Non-tourism Sector) respectively.

MIRA’s collection accounts for most of the government’s revenue, aside from the import duties that were not phased out with the introduction of the Tourism Goods and Services Tax (TGST).

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Business bill under review after government raises “socio-economic” concerns

Parliament’s Economic Affairs Committee has this week begun a review of the Business Registration Bill returned to the People’s Majlis by President Dr Mohamed Waheed Hassan, after it was originally approved in April.

The President’s Office told Minivan News that the bill, initially proposed under the previous government, had been returned over fears about the impacts it could have on the country’s economy at the present time.

Official government figures indicated that inflation had risen to an annual rate of 16.53 percent in April. Earlier in the year, the Finance Committee estimated that the current budget deficit would reach 27 percent of GDP, or Rf9.1 billion (US$590 million).

The government meanwhile announced this week that it had already been issued with a Rf300million (US$19.5 million) government loan from the Bank of Maldives (BML), despite questions being raised over whether the deal needed Majlis approval.

The government had previously asked for parliamentary approval for the budget support loan in place of an existing $65 million (Rf1 billion) loan that had been approved for the 2012 budget. The President’s Office claimed the funding, devised as part of a “mop up” operation, would help “reduce the circular flow of rufiya in the economy” adding it would not exacerbate the current national spending shortfall.

While unfamiliar with the latest amendments being proposed to the Business Registration Bill, a former Economic Development Minister who served under the previous government claimed the legislation had originally been devised in an attempt to simplify the registration of foreign investors.

However, President’s Office Spokesperson Abbas Adil Riza said that the bill was deemed by the present government to represent the implementation of a new tax regime in the country – a decision he suggested was unreasonable considering the current economic climate.

“At a time where as I’m sure you are aware, the economy is beginning to improve, the president and the cabinet has agreed that the time is simply not right to introduce new taxes,” he said.

According to local newspaper Haveeru, President Waheed’s concerns regarding the bill were said to include “Article 3 (e)”, which relates to services provided for islands beyond the capital of Male’. The report said that the nature of these services was believed to be unclear in the original drafting of the bill.

The president was also reported to have raised an issue with a perceived failure in the bill to specify a “process” required for the registration of a foreign branch of a company in the Maldives. The government therefore requested the removal of “Article 5 (b)” as well as a number of amendments relating to the registration of a branch of a foreign company in the Maldives, raising concern over a lack of specifics related to the use of the term “foreigners”.

When questioned by Minivan News, Abbas did not specify the exact nature of the potential “legal and socio-economic ramifications” that had concerned the government about the Business Registration Bill.

The bill was one of three pieces of legislation related to economic reform returned to parliament for revision last month on the basis of issues raised by Attorney General Azima Shukoor.

The exact nature of these concerns was not detailed by the President’s Office at the time, while the attorney general was also not responding to calls today about the nature of the government’s decision to return the bill.

Finance Minister Abdulla Jihad meanwhile forwarded Minivan News to the Ministry of Economic Development concerning an enquiry on the Business Registration Bill. Economic Development Minister Ahmed Mohamed was not responding to calls.

Reform package

Although unfamiliar with the latest proposals for amendments to the Business Registration Bill, Mahmoud Razee, Economic Development Minister under the previous government, said the legislation was original proposed as part of a wider economic reform package championed by Nasheed’s administration.

The reforms, introduced under the previous government, were further revised following consultations with the International Monetary Fund (IMF) over how to strengthen and stabilise the economy.

These policies included introducing a general Goods and Services Tax (GST); raising import duties on pork, tobacco, alcohol and plastic products; raising the Tourism Goods and Services Tax (T-GST) to 6 percent; and reducing import duties on certain products.

Razee stressed that registration bill was intended specifically to provide a “clearer means” for facilitating foreign investment within the Maldives’ business sector.

“We were trying to make it easier to register foreign shareholders here,” he said.

Taking the retail sector as an example, Razee said that the retail sector was quite “restrictive” in terms of encouraging foreign investment.

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September incomes topple August

Maldives Inland Revenue Authority (MIRA) has released figures showing that the state earned Rf269.6 million more in September than in August, when income was reported at Rf260.7 million.

Altogether, MIRA collected more than Rf500 million (US$32 million) as income through September.

Resort rents accounted for the largest amount of income received (Rf196.4 million). Tourism Goods and Services Tax (T-GST) came in at Rf71.9 million.

Nearly half of the state’s dollar income which goes through MIRA comes from tourism rent payments (US$12.8 million).

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Government underestimating tourism economy by more than US billion, claims economist

The Maldives has significantly underestimated the value of tourism to the local economy by over a billion dollars, according to a report by economics lecturer and Assistant Manger of the Maldives Monetary Authority (MMA)’s Monetary policy and Research Division, Ibrahim Ameer.

In the first month following the introduction of 3.5 percent Tourism Goods and Services Tax on the tourism sector, the Maldives Inland Revenue Authority (MIRA) collected US$7.2 million from 800 of the 871 registered tax payers.

“This means the whole tourism industry’s revenue (market value) would amount to approximately US$210.0 million for the month of January and approximately US$2.5 billion for the whole year,” observes Ameer.

In comparison, the government’s official figure for the total market value of all goods and services produced in the country – not just tourism – is US$1.5 billion.

In his report, Ameer recalculates the budget deficit based on updated GDP figures and concludes that the deficit sits at nine percent, “as opposed to 17 percent of GDP in 2010 as per government authorities.”

“I suspect these underestimated figures are used by the authorities to prolong the preferential treatment Maldives has and in some cases continues to receive as a [former] Least Developed Country (LDC),” Ameer surmises, suggesting that “ our country’s problems are primarily a case of the state’s inability to collect revenue through taxation rather than a budget deficit.”

“It should be agreed that as the country marches towards full democratization, with new independent statutory institutions, local and atoll councils and increased civil service salaries, the country needs to rethink it tax policy,” Ameer states.

In an agreement reached with the International Monetary Fund (IMF) last week, the Maldives has committed to:

Raise import duties on pork, tobacco, alcohol and plastic products by August 2011 (requires Majlis approval);
Introduce a general goods and services tax (GST) of 5 percent applicable to all sectors other than tourism, electricity, health and water (requires Majlis approval);
Raise the Tourism Goods and Services Tax (TGST) from 3.5 percent to 6 percent from January 2012, and to 10 percent in January 2013 (requires Majlis approval);
Pass an income tax bill in the Majlis by no later than January 2012;
Ensure existing bed tax of US$8 dollars a night remains until end of 2013;
Reduce import duties on certain products from January 2011;
Freeze public sector wages and allowances until end of 2012;
Lower capital spending by 5 percent

Comparison figures Ameer provides for corporate, income and GST/VAT tax regimes regionally and around the world, show the proposed figures for the Maldives are substantially lower.

India, for example, has a 25 percent business profit tax (BPT), individual income taxes of 0-30 percent, and a GST of up to 12.5 percent. Pakistan has a 35 percent BPT, 7.5-35 percent income tax and a GST of 17 percent. Barbados, another tropical island tourism destination, collects a BPT of 25 percent, income tax of 25-25 percent and a GST of 15 percent.

In his conclusion, Ameer argues against substantial cuts of the Rf12 billion state budget, noting the impossibility of reducing that to match the government’s present RF7 billion in revenue, and presses for the careful introduction of taxation.

“We could save some expenditure through cutting waste, prioritising projects and eliminating corruption. On the other hand, we must all agree that in certain areas wage and salaries given are very low compared to many countries,” he suggests.

As a result, “it is difficult to retain skilled and highly educated people in the country. This is why we see so many bright Maldivians leaving the country to work abroad. In the education sector, where the future of the country is molded and where the bright and the best are needed to teach future generations, the remuneration is pathetically low. The average wage for leading teacher with a Master’s degree is Rf 8354 (US$540).”

“The academic and education sector should be highly competitive and more rewarding if we are to build a better future and save ourselves from the sort of ‘brain-drain’ that we cannot afford. The situation is more or less the same with the healthcare sector of this country, with many of the brightest doctors and nurses opting for work abroad in countries as diverse as New Zealand and Canada,” Ameer observes.

He notes that the disproportionately high rents in Male’ swallowed 70-80 percent of the income of many residents in the city, “and as a result, disposable income is lower than it should be to encourage a more competitive market place and economy.”

“Because only Male’ is equipped with all the necessary facilities, like education and health care, more than one third of the population is living here. This creates irreparable social and economic damage,” Ameer claims.

Much of the visible development in Male’ he claims is the a result of a “coffee-shop bubble, a smokescreen that is bound to burst dragging the economy into depression.”

“To achieve sustainable development we need to see past supermarkets, boutiques and coffee shops in every corner,” he suggests.

“The wealthy need to realize that it is more lucrative to have businesses that decline, over our dependence on imports. The present business model increases imports and puts more pressure on the foreign exchange. It only widens the disparity between the rich and the poor when there is a negative impact on the economy.”

Read the full report

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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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