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Page added on September 9, 2010

President ratifies goods and services tax to offset new land tax scheme

President ratifies goods and services tax to offset new land tax scheme thumbnail

President Mohamed Nasheed has ratifed parliament’s Tourism Goods and Services Tax (GST) Bill, which will impose a levy on most products and services sold to tourists by the resort industry.

Once implemented, the GST will apply to room rates charged by resorts, hotels, picnic islands, guest houses and tourist vessels, as well as all goods and services sold to tourists by these businesses.

The GST will also apply to domestic transportation of tourists, travel planner charges, and goods and services sold to tourists by dive schools, shops, spas and water sports facilities by resorts, guest houses and tourist vessels.

Deputy Minister for Tourism Mamduh Waheed explained the new legislation, which would impose a tax of approximately 3.5 percent, was intended to the offset the revenue lost through standardising land tax charged to resorts and scrappage of the ‘bed tax’.

Resorts currently pay a flat rate of US$8 per occupied room, per night, however the resort industry has criticised this as a disincentive to increase capacity and promote expansion, and limit potential revenues in the future.

Presently the government has been making anywhere from US$3,500-20,000 per bed every year, generating a total of US$47 million in revenue from the bed tax per year.

Under the amended Tourism Act, arbitrary lease agreements will be replaced by a blanket payment whereby if the rent charged for less than 200,000 square metres is more than US$1 million, the rent is set at US$1 million per year, and if the rent charged is less than US$1 million, the rent will be set at a rate of US$8 per square metre.

The Act stipulates that US$1.5 million per year will be charged for 200,001 to 400,000 square metres, while where the rent paid for land greater than 400,001 square metres is more than US$2 million, the rent of the land will be set at US$2 million per year.

The new land tax scheme, which was originally proposed by MDP MP Ibrahim Mohamed Solih, reduces the government’s income from the tourism sector from Rf 1900 million (US$148 million) to about Rf 1300 million (US$101 million).

“Before the lease rent was set individually for each property and it was very easy for a Minister or the government to modify it,” Mamduh explained, “although there was an index sometimes used to calculate the price based on proximity to international airports.”

Basing land tax on a square-metre basis “actually reduces the rent of most properties,” Mamduh said, explaining that the new GST was intended to offset this loss.

“Both of these will be good for everyone, especially investors, now the ministry cannot play with the axes any more.”

Opposition DRP MP and former Tourism Minister Abdulla Mausoom has previously told Minivan News that a standardised land tax scheme was “not in the best interest of the country”, because fixed prices did not give the government flexibility when investors were willing to pay a better price.

“The Maldives is very small and our natural resources are limited,” Mausoom said in April.

“We should facilitate and investor-friendly environment without eliminating the competitiveness of the market.”

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13 Comments on "President ratifies goods and services tax to offset new land tax scheme"

  1. Salim Waheed on Thu, 9th Sep 2010 4:52 PM 

    I’m still not completely clear on what impact this will have on Government revenue. If we are only charging 3.5% for goods and services provided within the country wont this just provide incentive to operate these businesses outside of the country instead and avoid the tax all together.

    For example, if you have a resort, you can just create a Tour Operator abroad and sell your rooms at a hugely reduced rate to your other company thereby having to pay almost nothing in taxes. For those companies that are all-inclusive, then the government won’t be making any money for even the alcohol that is sold to tourists.

    I’m not very satisfied with all this. Too many loopholes. Too much lenience.

  2. abdullah Raheem on Thu, 9th Sep 2010 9:00 PM 

    @ Salim, loopholes have been very much reduced, and your concern has been addressed in the GST bill. I think before commenting, u should atleast take a look at the bill. Do u think lawmakers will allow such lenience and loopholes when it comes to government revenue stream?
    We have taken all the measures to safeguard countries most vulnerable revenue stream and has included opinions and advice from various stakeholders at committee stage. do u think running up a tour operating company in another country would be cheaper than Maldives? when we have our GST tax at around 3.5% and other countries having high sunk cost and taxation policy morethan 25% on all areas. including GST or VAT and Corporation Tax.

  3. fehiakiri on Thu, 9th Sep 2010 9:52 PM 

    The best thing to do right now is to research on what has been implemented and get to know how effective each souses is to us? We can create and design any Governing Systems or Executive-Legislative relations however how do we collaboration them to one piece and say what we are doing?

  4. fehiakiri on Thu, 9th Sep 2010 10:04 PM 

    We are not ready yet! It will be a good idea to see the law & order becomes effective at midnight or functioning.

  5. maldivesresortworkers on Fri, 10th Sep 2010 1:08 AM 

    Now that a whole new system is coming on-line to regulate resorts, its important to ask what will happen to the islands that were “Stolen” from the government. Stolen islands are those islands which does not appear in the tourism ministry’s database and yet are run exactly like other resorts. An example is the Kandholhu Island Resort.
    Here is the link:
    http://maldivesresortworkers.wordpress.com/resorts/universal-resorts/kandholhu-island-resort-north-ari-atoll/

  6. Ibrahim yasir on Fri, 10th Sep 2010 4:54 PM 

    The Maldives government should also start charging an entry visa fee from all the tourists visiting Maldives. This money can be used for the poor and for the income revenue of the country. Many rich countries in the world already generate money from tourist visas into their inland revenue and I dont understand any reason why our government cant do it too.

  7. ahumad on Fri, 10th Sep 2010 7:33 PM 

    @salim: what are the loop holes?

    And I suggest you read through the two pieces of legislation referred to in the article (but with your Dhivehi I doubt you can read or understand them as proper English translations of the acts/bills have not been made still. As mentioned the new bill on land tax will reduce the taxers earned by the government at the moment, hence the GST will help to create the missing revenue.

    Do a bit of research into the subject before just typing out your first response or gut reaction.

    thanks,

    Ahumad

  8. Addu on Fri, 10th Sep 2010 10:36 PM 

    Could someone clarify a possible method of evaluating bids when awarding new resorts in future. Previously it was based on the bed rent I think. Now we have a fixed land rent. The bid with the highest bed tax and upfront payment usually wins resorts in earlier bids.

  9. Salim Waheed on Sat, 11th Sep 2010 12:58 AM 

    Abdullah Raheem and Ahumad,

    Attack me as you will, but my criticisms still stand. I was discussing those nations which still have corporate tax exemption available to companies operating in those nations. Yes those international loopholes are also being closed, but they are not closed yet. Many nations regulate banking and investments, but not Travel Companies.

    I also like typing out my gut reaction. It stops me from being mad the rest of the week that some of our MPs are so invested in the tourism industry that they can justify a 3.5% tax. (And yes, this is one of the lowest corporate taxes in the world). And when they completely neglect the idea of personal taxation because they can’t sell the idea to the public that it is necessary for our country’s survival.

    Yes, lets just keep on relying on the indirect taxation of all of the goods that come into this country so that the cost of living is ridiculously high. Maybe we can continue to keep fooling the Maldivian public, allowing ourselves to dig this country ever deeper into debt. Wonderful guys, just wonderful.

    See.. I feel better already.

  10. ahumad on Sun, 12th Sep 2010 4:47 PM 

    @salim: you actually argued completely against your present views when bills were first sent to parliament. See your comments in this link: http://minivannews.com/politics/governments-bill-reduces-tourism-revenue-but-improves-investor-confidence-5892 you had proposed to integrate the GST component in the bill.

  11. habeeb on Mon, 13th Sep 2010 1:34 PM 

    reducing governments income from the tourism and putting it back into the pockets of Champa, universal, jabir, shiyam, gasim..etc etc… what a brilliant idea!

  12. Salim Waheed on Mon, 13th Sep 2010 10:10 PM 

    I never said it should not be incorporated. I said i think it should be higher. I also said that it is not stringent enough when it comes to enforcement.

  13. Dusty on Wed, 22nd Sep 2010 11:00 PM 

    Unfortunately your government has chosen a very bad time to implement this tax. The current economic climate in a lot of the countries where visitors come from means I fear you will lose many visitors.

    Tour operators already are increasing prices to a very high level.

    As much as it hurts me to say but we will not return until prices are more realistic. There are plenty of other places in the world to explore…


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