Concerns Over Proposed Tourism Real Estate Tax
Members of the Parliament have raised serious concerns about the Tourism Act Amendment Bill introduced last month, which proposes significant changes to the taxation on long-term villa rentals in tourist resorts.
Introduced by Kendhikulhudhoo MP Ahmed Easa, the bill seeks to abolish the current 16% Tourism-Goods and Services Tax (T-GST) levied on such transactions, replacing it with a 4% real estate tax. While the principle of a change in the taxation framework has generally found support among MPs, the specifics have come under scrutiny.
Hulhudhoo MP Ilyas Labeeb was particularly vocal in his concerns, stating that the 4% tax on long-term rentals seemed disproportionately low when compared to the tax burden on Maldivians purchasing flats, which currently stands at 8% GST. “When people are buying flats at such a high price, charging such a low tax on the richest people in the world is not an acceptable rule. We need to bring a balance to this,” he said.
Kelaa MP Ibrahim Shareef also advocated for a more equitable tax policy, suggesting that the proposed 4% real estate tax rate should be increased. The Ministry of Finance estimates indicate that the amendment, if enacted, could result in an annual revenue loss of MVR 447 million.
Urgent Need for Geographical Expansion of Tourism
Apart from taxation, the debate also concentrated heavily on the uneven geographical distribution of tourism development across the Maldives. MPs were unanimous in their concern that many islands allocated for resort development have remained incomplete, particularly affecting local employment.
MPs proposed a variety of incentives to attract investments in less developed regions. Hoarafushi MP Ahmed Saleem moved an amendment to offer import duty exemption and a 50% tax waiver for 10 years in the northern and southern regions. He cited the high cost of transportation and uniform taxation across regions as the major deterrents for tourism expansion.
Hulhudhoo MP Ilyas also proposed a series of concessions such as a full exemption from import duties and a 50% cut in taxes for an additional seven years. “There is a need to explore ways to expand tourism in these places. Can they pay taxes? Can they operate? What will be the progress that will come when these changes are made?” Ilyas pondered.
Foreign Exchange Concerns
The proposed legislative changes also drew attention to broader economic issues, particularly the retention of foreign exchange earnings. Kendhikulhudhoo MP Ahmed Easa noted that although tourism in the Maldives is estimated to earn $4-5 billion a year, less than 20% of it circulates within the Maldivian economy. “Only the money that is generated from running the resort and its outlets is the foreign exchange that Maldives gets,” he stated.
Easa called for more stringent regulations to ensure that foreign exchange earnings remain in the local banking system. He suggested laws to prohibit the repatriation of foreign currency income from businesses in the Maldives abroad without being first deposited in a Maldivian bank.
Future Trajectory and Criticisms
In a climate of increasingly complex challenges, MPs appear aligned in their commitment to rethinking the Maldives’ tourism tax and investment policies. The debates indicate that while tax reforms are essential, they are part of a broader dialogue that also encompasses equitable regional development and foreign exchange retention.
However, the timing of the proposed amendments has raised eyebrows among critics and political observers. Given that the legislative changes are being debated so close to upcoming parliamentary elections, there is growing suspicion that the tax concessions may be motivated less by public interest and more by the influence of lobbyists or shadow backers of parliamentarians.
Prominent analysts have noted that these amendments, if passed, could be enormously beneficial for big businesses and tourism giants, who are alleged to be the shadow backers of some MPs. Critics argue that the proposed tax reductions and exemptions are conditions set by these backers to fund parliamentarians who are seeking re-election.
A political commentator who spoke on condition of anonymity opined, “One cannot ignore the conspicuous timing of these amendments. To think that sweeping tax changes, which could affect the national economy on a significant scale, are merely coincidental with the election cycle would be naive.”
The amendments and policy suggestions offered by various MPs are expected to undergo further scrutiny and modification before being enacted. However, the unfolding events raise valid concerns about whether these changes are in the best interest of the Maldivian populace or are driven by a set of vested interests looking to maximise their returns, particularly in the context of looming elections.
