Back in 2008, the majority of Maldivians voted against the incumbent autocratic ruler, who had ruled Maldives for 30 years. Even at that time there were about 40% of the voters who supported that President, Maumoon, making the 2008 election very competitive; and increasing the polarization in the country. What was evident during that time, as an observer, is that there were some businessmen who wanted to protect the Maumoon regime, as it ensured the protection of their own business interests. Likewise, there were a huge percentage of ordinary citizens who wanted to protect the Maumoon regime, for reasons they would better understand.
Anyhow, then there was the MDP, who was the opposition at that time. There were many loyalists of this reform movement, people who joined the party simply because they had a genuine belief that the state of the country has to change. There were many people who sincerely supported MDP because they cared for the country, they wanted the drugs problem to be solved. They wanted the housing problems in Male' to be solved. They wanted prices to come down, and they wanted more social protection, and economic well-being. The PR campaigns and the pledges of MDP were also very smart; addressing those issues that grass-root ordinary citizens felt for. Maumoon, the judiciary, police, and the parliament was portrayed as 'wicked', 'corrupt', and exploiters of the country's wealth. Maumoon was blamed for almost anything and everything bad that ever happened in the country during those last few years.
Maumoon was smart, and removed his 'old guards', and replaced them with young blood, like Hasan Saeed, Nasheed, Shaheed, Aisha, Jameel, Shaugy, and others. There was a young, energetic cabinet, who publicly showed sincerity in bringing reforms to the country. However, just when it was about time for the presidential election, Hasan Saeed together with Jameel, and later Shaheed got out of the government, and blamed Maumoon for many short-comings in the reform process. Later, Hasan contested in the presidential election, and came third. Qasim also resigned from the post of Finance Minister, just in time for the election, contested, and lost in the first round. In the second round, Hasan and Qasim backed the current President, Nasheed who came up second in the first round. As Nasheed defeated Maumoon in the second round, and became the first democratically elected President in the country, there were many who had high hopes, and high expectations for the future of this country.
So, two years after the change in the government, are the people happier, now that their hopes and expectations are being met? With the fall of the dictatorship, is the country better off? Well these are difficult questions to answer using the appropriate statistics. For one thing, it might not be appropriate to compare the two Presidents or the two governments, as the new President has a new Constitution to abide; the current government has to face new independent institutions, and an independent judiciary, and a highly-powerful parliament. That brings me to the main 'gist' of my story.
The political economy of our country is still the same; as there are few 'very rich' families who control almost all the affairs of the country. It has been the case even 5 - 10 years back in this country. It is so even now. The Parliament has bunch of 'millionaire' businessmen, who would do anything to protect their own business interests, and to make sure that new and young people do not emerge in their area of business, so that they wont have enough competition. Most of these businessmen want to keep the poor under their control, by providing them with small favors; like donating a ticket to India for medicals, or few dollars as charity. These businessmen have in their control families who are directly employed in their businesses, and they would fight for their last breath to protect their businesses. It will be very difficult to pass legislation that would raise import tariffs, business profit taxes, tourism lease rents, and other forms of taxes. At the same time, these Parliamentarians will do everything they can to increase the government expenditure so that they could get re-elected, as their constituents would support any additional spending on them.
Those huge businessmen who supported and spent on campaigns of Maumoon is today supporting the campaigns of Nasheed, and in turn, the current government is expected to make sure that the interests of these businessmen are well-protected. It doesn't seem that there is anybody in the country who is protecting the interests of the poor, the ordinary citizens of the country. It doesn't seem that anybody is sincerely trying to protect the interests of the nation.
Monday, February 28, 2011
Thursday, February 10, 2011
Winning hearts and minds
One thing is for sure. These local councils; the island councils and the atoll councils will definitely increase the state expenditure, as more than 1,000 councillors will suddenly start receiving huge salaries. Salaries that do not match their abilities, capabilities, and qualifications. I’m also not sure whether this change in administration will take us forward in development, or take us backwards. We’ve yet to see.
What I really want to talk about today is, about the lessons that MDP could learn from the results of the recent local elections. As we all know now, according to preliminary results, a lot of atoll councils and island councils have been won by the opposition party, DRP. Not that DRP spent millions, and had the best campaign strategy. Not that DRP had a strong leadership, and good plans for the future. In fact, nobody knew who the REAL leader of DRP is, when people were voting. Still, DRP got so many votes, and almost 500 seats in the elections. Why?
I’d say, MDP has to learn new tactics in winning the hearts and minds of the people in the atolls. If they are really serious about the next presidential elections, they gotta learn well and start winning the hearts and minds. The only reason why DRP has obtained success may simply be because of huge political mistakes made by the government.
Mistake number one: trying to legalize sale of alcohol in Male’. We all know that the people who oppose this clearly understand the invalidity of their argument. A safari boat anchored near Male’, and can sell alcohol, and there’s no problem with it, but, if alcohol is sold in a hotel in Male’, it’s a big problem. That was their argument, those who opposed it. We all know that. Even the government knew it. And so, by trying to allow the sale of alcohol in Male’, what was the government trying to achieve? Trying to explain logic to the people? It doesn’t work that way. In politics, when it comes to sensitive issues like religion or culture, common sense or logic doesn’t matter. The truth or reality doesn’t matter. Say what the ‘majority’ want to hear. Do what the majority want you to do.
Mistake number two: The president saying words like ‘.... nulafaa kan dhakkaalaanan’ (I will show my evilness). We, Maldivians do not expect such words from our President. We want our President to be role model for the young, old and the children. To choose his words, so that his words could appear in slogans, magazines and newspapers. Our president may be very kind-hearted, and a very forgiving. But hearing him say that, makes people start hating him and his government.
Mistake number three: Decision to build a flat on the Arabiyya School land, and having Arabiyya School built in Chandanee Magu. The civil engineers, architects, and the Education Minister may appear on TV, and justify that the new land is in no way smaller than the previous one, and that the location doesn’t matter. But will it repair the damage? The damage done by the opposition, using the media, saying that this government is anti-Islam in so many ways? Why give the opposition such opportunity. Do we need more flats in Male’? Why can’t we build flats in Hulhumale’ instead? As I said earlier, issues relating to religion are very sensitive. Don’t go for logic and common sense. Try winning hearts and minds instead.
I think I’ll stop here, without talking more about the mistakes. Maybe another time, I may continue with number four. I’m not trying to say that I’m an expert in political analysis, and political planning. But, the people who are advising the President and the government, are they any better?
Wednesday, February 2, 2011
Business Profit Tax - Does it make us better off?
Recently the Majlis has passed the Business Profit Tax Act, and it has come into effect on 18th January 2011. According to the Article 41 of this Act, the law has to be implemented within six months, (by July 18th 2011). This means, businesses in Maldives have to pay tax on business activities carried out after that date. I wonder how many firms or businesses actually are aware of this., and I wonder whether the relevant authorities are doing enough to make the public aware of this. Anyway, that is not the issue that I intend to cover here. I guess what's more interesting would be; how much does this Act reduce the gap between the rich and the poor (ie, make the distribution of income and wealth more even); and by how much does this Act raise the government's tax revenue. There are many other issues relating to taxation that we need to talk about, and I may talk about such issues in a later post. Issues like the efficiency of a tax; compared to the amount of tax revenue raised, the cost of raising such revenue must be minimized in order to make it more efficient.
First of all, let me raise the question; why do we need taxes? Yes, to raise government revenue. Last year (2010), an estimated Rf3.0 billion was raised through taxation by the Government; mainly consisting of import tax, tourism bed tax, and bank profit tax. Through tax revenue, government is able to provide public goods, and provide benefits to the poor, hence, help in reducing the gap between the rich and the poor.
The existing tax system, however has done little in terms of addressing the issue of income distribution in the country. As import tax is paid on all goods imported and consumed, both the rich and the poor pay the same amount of tax. Making this a very regressive form of tax, as considering the income of the rich, the tax burden on them will be very small, compared to the poor. Even the bed tax from tourism industry is very regressive, as the same amount, $8 is paid by all resorts/hotels, irrespective of the room charge. In order to narrow the gap between the rich and the poor, taxes need to be more progressive in nature; meaning to collect a higher percentage of the rich people's income, and a smaller percentage from the poor.
Another objective of taxation is to discourage consumption of certain goods or services. For instance, import tax of certain goods like cigarettes can be increased, in order to discourage consumption.
So, how does the Business Profit Tax (BPT), reduce the income gap in Maldives? There are certain categories of businesses specified in the Act, and taxable incomes are specified. For example, Article 3 highlights on registered companies that are not partnerships, and Article 4 specifies businesses other than companies and partnerships. According to Article 7, all companies, partnerships and other businesses are required to pay 15% of the profits, provided that total profits exceed Rf500,000. If the profits do not reach Rf500,000, no tax has to be paid.
According the 2011 budget, an estimated Rf612 million is to be raised through BPT. This is highly unlikely, as the taxable period only starts from July of this year.
How does BPT help in narrowing the gap between the rich and the poor? Unlike the $8 bed tax, at least its not the same absolute amount that larger businesses and smaller businesses will be paying. A proportional tax rate of 15%, from all types and sizes of businesses in the Maldives may not be the ideal solution for evenly distribution of income.
Larger businesses if required to pay a higher percentage of tax, would make the tax system much progressive in nature. However, will it encourage further investments in Maldives? Will it attract more foreign investments in the country? One of the ways we can encourage businesses to innovate, and increase investments would be to reduce the direct tax on the income or proft, and move towards more indirect forms of taxation.
First of all, let me raise the question; why do we need taxes? Yes, to raise government revenue. Last year (2010), an estimated Rf3.0 billion was raised through taxation by the Government; mainly consisting of import tax, tourism bed tax, and bank profit tax. Through tax revenue, government is able to provide public goods, and provide benefits to the poor, hence, help in reducing the gap between the rich and the poor.
The existing tax system, however has done little in terms of addressing the issue of income distribution in the country. As import tax is paid on all goods imported and consumed, both the rich and the poor pay the same amount of tax. Making this a very regressive form of tax, as considering the income of the rich, the tax burden on them will be very small, compared to the poor. Even the bed tax from tourism industry is very regressive, as the same amount, $8 is paid by all resorts/hotels, irrespective of the room charge. In order to narrow the gap between the rich and the poor, taxes need to be more progressive in nature; meaning to collect a higher percentage of the rich people's income, and a smaller percentage from the poor.
Another objective of taxation is to discourage consumption of certain goods or services. For instance, import tax of certain goods like cigarettes can be increased, in order to discourage consumption.
So, how does the Business Profit Tax (BPT), reduce the income gap in Maldives? There are certain categories of businesses specified in the Act, and taxable incomes are specified. For example, Article 3 highlights on registered companies that are not partnerships, and Article 4 specifies businesses other than companies and partnerships. According to Article 7, all companies, partnerships and other businesses are required to pay 15% of the profits, provided that total profits exceed Rf500,000. If the profits do not reach Rf500,000, no tax has to be paid.
According the 2011 budget, an estimated Rf612 million is to be raised through BPT. This is highly unlikely, as the taxable period only starts from July of this year.
How does BPT help in narrowing the gap between the rich and the poor? Unlike the $8 bed tax, at least its not the same absolute amount that larger businesses and smaller businesses will be paying. A proportional tax rate of 15%, from all types and sizes of businesses in the Maldives may not be the ideal solution for evenly distribution of income.
Larger businesses if required to pay a higher percentage of tax, would make the tax system much progressive in nature. However, will it encourage further investments in Maldives? Will it attract more foreign investments in the country? One of the ways we can encourage businesses to innovate, and increase investments would be to reduce the direct tax on the income or proft, and move towards more indirect forms of taxation.
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