The Goods and Services Tax Act (Act Number 10/2011) will be amended starting mid-2025 in order to address ongoing tourism revenue losses, the Finance Ministry has said.
The ministry said that changing to the ‘destination principle’ will close loopholes and allow implementation closer to the spirit of taxation.
Under the destination principle, taxes are imposed at the point of usage rather than at the point of origin or production, allowing the state where the goods or services are ultimately used or consumed to collect the taxes.
The amendment also subject online goods and services to be taxed.
According to a Ministry of Finance official, the amendment will more efficiently address the difference between the prices resorts charge agents—a fairly common industry practice—and the prices tourists pay through the agents — prices offered to agents are generally lower than what tourists end up paying for their holidays.
While, for example, a five-star resort may sell a room to an overseas travel agent for US$500, the agent would sell the room with a significant markup for around US$1,750. This results in the state collecting only US$80 in taxes on the room. However, if the resort sold the room directly to a visitor for US$1,750, the state would receive US$280 in taxes. As a significant number of rooms are sold through foreign travel agents, the state loses approximately 70 percent of potential tax revenue when rooms are sold through agents.
However, while this means that tax will be collected on, the generally hefty, online travel agent transactions, members of the public would also likely be subject to higher rates, due to the inclusion of taxes, on their online transactions such as subscriptions and other online services; possibly including app store purchases — the state will then be able to generate tax revenue from online platforms such as Shein, Amazon, Netflix, Spotify, and other online goods and service providers.
Sri Lanka, Australia, Canada and Singapore are among the countries which use this GST principle.
While the Mohamed Muizzu administration has plans to increase the tax base, it will also increase the Airport Development Charge (ADC) and green tax to maximise tax revenue.
Minister of Finance Mohamed Shafeeq, speaking to the Parliament’s Public Accounts Committee on the Medium-Term Debt Strategy Statement, said that the Muizzu administration plans to make changes in its revenue generation policies to facilitate the repayment of the debts without risking bankruptcy. The administration is also preparing to take important measures to reduce expenditure.