Maldives tourism sector employment

Maldives has been positioned as one of the luxurious tourist destinations in the world, with many international brands operating resorts targeting high-end, high-net worth tourists. Brands like ‘Hilton’, ‘Waldorf Astoria’, ‘Four Seasons’, ‘Jumeira’, and ‘Conrad’, has presence in the country, and attract Premier League players, hollywood and bollywood stars; not to mention, the wealthy princes from the middle east.

As per the 2019 tax statistics, Maldives tourism sector generated about $2.7 billion revenue during the year. With more than 150 island resorts under operation, a significant percentage of the tourism earnings flows out the country. While tourism is the main export earner, and hence the main foreign exchange earner; true benefits of the sector is not efficiently realized by the country.

First of all, almost half of the resorts in the country are either owned or operated by foreign firms. The Maldives tourism product is based on the ‘one-island-one-resort’ concept; whereby the government leases an island for long term (usually 50 years, that can be extended to 99 years), and sometimes the head lessee sub-leases the island to a third party. Thus, many Maldivian head lease holders opted to sublease their islands, and the foreign investors end up owning the lease and the operating the island. Some even choose to sell their head lease to a foreign party.

Naturally, most of these international brands choose to bring their own team for the operation of the resorts; thanks to the long time government policy of not bothering to invest on human resource requirements for the sector. Despite Maldives being one of the top tourist destinations with so many world-class resort brands, the country does not have a world-class hotel school.

As per the recent report published by the National Statistics Bureau, the tourism sector (resorts) employ a total 44,954 as at 2019. Out of this only 21,332 (47%) are locals, while 23,622 are expatriates. The tourism sector being a highly labor-intensive industry, majority of the staff are in the skilled professionals category, with reasonable pay. Further, most staff earn service charge, and tips, in addition to the official basic pay and the allowances.

Most of the staff is employed in the F&B Departments, (29%), while house-keeping employs about 18% on average. Administrative staff account for 14%. Transport and other departments have a share of 30%. Furthermore, as per the data in the said report, 67% of the Maldives resorts are five-star properties, and 30% four-star resorts. With an average of 303 staff in five start resorts, we are looking at an estimated 15,000 or a higher number of expatriate staff in these expensive resorts; with relatively better pay compared to most other industries.

With proper planning, and long term vision, the benefits of the tourism sector could further trickle-down, and youth unemployment better addressed, if there were better efforts to train and encourage locals to work in the tourism sector. So that educated Maldivian professionals could take senior positions at the resorts. This could reduce the burden on the government to employ them in the public sector, with jobs that are  with lower pay, and under-utilization of their skills. This way, we could retain income from tourism further within the economy. More than $100 million per year is estimated to flow out as remittances from the expatriate employees working in the tourism sector (own estimates). Added this, remittances from workers from other sectors, there would be a total estimated outflow exceeding $150 million every year.

Death of George Floyd and the American inequalities

While the United States and the rest of the world have been struggling with the COVID-19 pandemic, with more than 100,00 deaths and about 1.8 million positive cases in the US, massive protests have erupted and are continuing in several US cities, as the whole country saw the video of the last moments of George Floyd’s life. How the very people who were supposed to protect the citizens of Minneapolis, let him die.

George Floyd, who was 46 years old, was reported to have purchased cigarettes with counterfeit dollar bills on the 25^th May. As per the widely seen video, police officer Derek Chauvin was kneeling on the neck of Floyd for several minutes, despite him repeatedly pleading that he could not breathe.

The following day, the four officers involved were fired. Meanwhile as the video is widely shared on social media, protests erupted and hundreds of demonstrators were on the streets of Minneapolis. Police cars were vandalized, and on the 27^th May, the police station where the officers involved were based was set on fire. Soon, protests spread to many other cities.

On the 28^th May, President Trump tweets “when the looting starts, the shooting starts”, and this tweet is hidden by twitter for ‘glorifying violence’.

As per media reports from Reuters, and BBC there were more than 75 cities with protests and wide spread violence in some places. With at least 4,400 people arrested by 31^st May, I saw vides on Facebook and CNN, where several department stores were vandalized and looted by hundreds of demonstrators.

While the most demonstrations were peaceful, the level of outrage that we saw in some videos makes one wonder about the impending problems and frustrations in the country. While the United States has been trying to enforce democracy, human rights, and equal opportunity in other countries; its own backyard is with huge socio-economic inequality, and systemic racial discrimination. The US economy has had a prolonged period of stark income and wealth disparity for the past two decades. It may mean that the country can no longer ignore the widening economic and political inequalities; especially the worsening gap between the African Americans and the rest.

As per Census Bureau data reported by Economist, the average black household income in 2018 was at $41,400 while for whites it was $70,600. One thing that the present COVID catastrophe has shown us; is the relative vulnerabilities of the African-American families and individuals; as they have been the hardest hit.

According to Joe Stiglitz, the top 1 percent controls 40 percent of the US wealth. The hard truth is, just like most of the developing and poor countries of the world, the top 1 percent control the politics, and all major economic decision making in the country, which is most of the time in favor of the 1 percent, and making those at the bottom poorer.

މުޅި ދުނިޔެ މިދަނީ ނަގުދު ފައިސާއާއި ދުރަށް

ރާއްޖޭގައި ލައިސެންސް ދެވިގެން 8 ބޭންކު ޚިދުމަތްދެމުން ގެންދާއިރު، ޖުމްލަ 52 ބޭންކު ބްރާންޗު އަދި 120 އޭޓީއެމް މެޝިން ވަނީ ޤާއިމްކުރެވިފައެވެ. މިއާއިއެކު ފާހަގަވާ ކަމަކީ، ދުނިޔޭގެ ގިނަ ގައުމުތަކާއި އަޅާ ބަލާއިރު ރާއްޖޭގައި ނަގުދު ފައިސާ ބޭނުންކުރާ މިންވަރު ނިސްބަތުން ބޮޑުކަމެވެ. ބޭންކުތަކުން ނަގުދު ފައިސާގެ ގޮތުގައި ނެގޭ މިންވަރު ވަރަށް ބޮޑުކަމެވެ. ވިޔަފާރީގެ މުއާމަލާތްތަކުގައި ނަގުދު ފައިސާ ބޭނުންކުރާ މިންވަރު އިތުރުކަމެވެ. މަސްވެރިން، ދަނޑުވެރިން، އަދި ކުދި ވިޔަފާރިތަކުގައިވެސް، އަދި ތެޔޮ އެޅުންފަދަ ޢާންމުކޮށް ގިނަގިނައިން ލިބިގަންނަ ޚިދުމަތްތަކުގައިވެސް ނަގުދު ފައިސާއަށް ބަރޯސާވާންޖެހިފައިވާ މިންވަރު ރާއްޖޭގައި ވަރަށް ބޮޑެވެ. އެހެނަސް، ދުނިޔޭގެ އެހެނިހެން ގިނަ ގައުމުތަކުގައި މިހާރު ގިނަ މުއާމަލާތްތައް ހިގަނީ ޑިޖިޓަލްކޮށް، މޮބައިލް ފޯނުފަދަ ވަސީލަތްތައް ބޭނުންކޮށްގެންނެވެ. އެފްރިކާގެ އެންމެ ފަގީރު ގައުތަކުން ފެށިގެން، ޔޫރަޕުގެ އެންމެ މުއްސަދި ގައުމުތަކުގައިވެސް، މިހާރު ފައިސާ ދެއްކުމުގެ ނިޒާމު ބަރޯސާވެފައިވަނީ މޮބައިލް ފޯނަށާއި، ފަރުދުންގެ އިގިލީގެ ނިށާނަށެވެ.

އިންޑިއާގައި، ނަރެންދުރަ މޯޑީ 2014 ވަނަ އަހަރު ބޮޑުވަޒީރުކަމާއި ހަވާލުވުމާއިއެކު ހުރިހާ ބޭންކުތަކަށް އަންގެވީ އިންޑިއާގެ އެންމެނަށް ބޭންކު އަކައުންޓް ހުޅުވައިދިނުމަށެވެ. މިގޮތުން 360 މިލިއަން އެކައުންޓް އިތުރަށް ހުޅުވިގެން ދިޔައެވެ. މިއާއިއެކު 2016 ވަނަ އަހަރު ގާއިމްކުރެވުނު ޔުނިފައިޑް ޕޭމަންޓް އިންޓަފޭސް (ޔޫ.ޕީ.އައި) އާއިއެކު، 'ޕޭޓީއެމް' ފަދަ، އަދި 'ފޯންޕޭ' ފަދަ ކުންފުނިތަކުން ޑިޖިޓަލް ޕޭމަންޓްގެ ޚިދުމަތްތައް ގިނަ ބަޔަކަށް ދޭން ފެށިއެވެ. ވޭތުވެދިޔަ 2 އަހަރުގެ ތެރޭގައި އިންޑިއާގައި ޑިޖިޓަލް ޕޭމަންޓްތައްވަނީ 50 ގުނަ އިތުރުވެފައެވެ.

ބަންގްލަދޭޝްގައި 2011 ވަނަ އަހަރު ގާއިމްކުރެވުނު "ބީކޭޝް" މޮބައިލް ޕޭމަންޓް ޚިދުމަތާއިއެކު އެތައް މިލިއަން ބަޔަކަށް ވަނީ ބޭންކިން ޚިދުމަތް ލިއްބައިދީފިއެވެ. މީގެ އިތުރުން، ކެންޔާ ފަދަ ގައުމުތަކުންވަނީ ނަގުދު ފައިސާއަށް ބަރޯސާނުވެ، މޮބައިލް ފޯނުން މާލީ ޚިދުމަތްތައް ފޯރުކޮށްދިނުމުގައި މުޅި ދުނިޔެއަށް ނަމޫނާ ދައްކާފައެވެ. އަދި ޕާކިސްތާނުފަދަ ބޭންކިން ޚިދުމަތް ބޭނުންކުރާ ނިސްބަތް މަދު ގައުމުތަކުންވެސް  މިހާރު މިސްރާބު ހުރީ މޮބައިލް ފޯނުގެ ޒަރީއާއިން ފައިސާ ދެއްކުމުގެ ނިޒާމެއް ގާއިމް ކުރުމަށެވެ.

ރާއްޖޭގެ ރަށްތައް ގުދުރަތީ ގޮތުން މިވަނީ ކަނޑުގެ ޒަރީއާއިން ވަކިވެފައެވެ. އަދި ޖުމްލަ 188 ރަށުގައި މީހުން ދިރިއުޅެމުން ގެންދެއެވެ. މީގެ އިތުރުން 135 ރަށުގައި ޓޫރިސްޓުންނާއި، ރިސޯޓު މުވައްޒިފުން އުޅެމުން އެބަދެއެވެ. މިއާއިއެކު، މި ހުރިހާ ރަށެއްގައި ބޭންކެއް ނުވަތަ ބޭންކެއްގެ ބުރާންޗެއް ނުވަތަ އޭޓީއެމް އެއް ބެހެއްޓުމަކީ ނުހަނު ޚަރަދު ބޮޑު އަދި އުދަގޫ ކަމެކެވެ. މިހެންކަމުން، ރާއްޖެފަދަ ޖަޒީރާ ގައުމެއްގައި، ވީހާވެސް ގިނަ ބަޔަކަށް، ނުވަތަ އާބާދީގެ އެންމެނަށް ބޭންކިން ޚިދުމަތް ފޯރުކޮށްދެވޭނެ އެންމެ ފަސޭހަ މަގަކީ މޮބައިލް ފޯނު މެދުވެރިކޮށް ބޭންކުން ލިބޭ ހުރިހާ ޚިދުމަތެއް ލިބިގެންދިއުމެވެ. ރާއްޖޭގައި މޮބައިލް ފޯނު ބޭނުންކުރާ ނިސްބަތް އިތުރެވެ. އަދި ބޭނުންކުރެވޭ ފޯނުތަކުގެ ފެންވަރުވެސް ދުނިޔޭގެ އެހެނިހެން ގައުމުތަކާ އަޅާ ބަލާއިރު ނިސްބަތުން ރަގަޅެވެ. މިހެންކަމުން، ރާއްޖޭގެ ހުރިހާ އެންމެނަށްވެސް، މޮބައިލް ފޯނު މެދުވެރިކޮށް މާލީ މުއާމަލާތްތައް ކުރުމުގެ މަގު ފަހިވެއްޖެނަމަ، ކޮންމެ ބޭންކެއްގައި އެކައުންޓެއް އޮތްކަމުގައި ވިޔަސް، ފަސޭހަކަމާއިއެކު، ވަގުތުން ވަގުތަށް ފައިސާ ދެއްކިގެން ދާނެއެވެ. އަދި މިކަމުގެ ސަބަބުން އިގްތިޞާދީ ހަރަކާތްތައް އިތުރުވެ، ތަރައްގީއަށް އިތުރު ހަލުވިކަމެއް ލިބިގެންދާނެއެވެ.

Maldives Reserves - What is the adequate level?

The Gross International Reserves (GIR) of Maldives, held at Maldives Monetary Authority (MMA) stood at USD 938 million as at February 2019. This is a USD 228 million increase (32%) compared to the level in February last year.

What is Gross International Reserves? What does it consist of? For a small, open economy like the Maldives, what is the adequate level of foreign currency reserves?

The GIR held at MMA consists of reserve assets that are in control of MMA as the central bank, and can be readily used in order to meet the financing needs of the balance of payments. The main, and most significant component of the GIR is the total foreign currency deposits of MMA, and the government. Part of GIR also consists of foreign currency reserves of commercial banks held at MMA.


With Maldives Rufiya pegged to the US dollar, we have an exchange rate with an upper band of
MVR 15.42 per US dollar. If any central bank or a monetary authority has a fixed official rate, such authority must be at all times, willing to accept and supply foreign currency at the said rate. Otherwise, whenever there is a shortage of USD in the market,there will emerge a parallel market where trading may occur outside the official rate. Hence, the central bank will need to intervene in the market to ensure that the market is cleared. That is when, the level of reserves becomes important.

The GIR held at MMA by the end of February 2017 was at $516 mil, and increased by 37% by the end of February 2018. Like it was highlighted in the beginning, a further 32% increase by February 2019, with a total GIR of $938 million. What does this mean? Of course the total reserves has increased in absolute terms in the past two years. But the important piece of information that we need is the source of such increase. Whether this is a result of an increased foreign currency revenue of our country? We may easily show an artificial, temporary boost in total reserves even by incurring huge foreign currency debts. We may also enter into temporary currency swap arrangements, and as a result, show a higher level of gross reserves. The important factor is that we should be gradually accumulating reserves from our revenue, and in that way obtain a sustainable balance that could benefit the balance of payments.

When conditions in the economy improves, in terms of increasing foreign currency revenues, and by maintaining a sustainable level total spending, we will be in a position where there will be positive impact on the existing exchange rate. Just like when the conditions worsen we are forced to devalue the currency, when the conditions improve, we should also be able to allow an appreciation of our currency.

Towards a sensible interest rate regime..

The interest rate in any economy plays a vital role in the financial sector. As it is the cost of borrowing money, or the compensation that we receive for the service of lending money. When we lend money to someone, we are obviously taking a risk, and that demands a price, or compensation. And, it is very important that this rate is determined in a sensible manner.

There are some factors that determine the interest rate in the economy. Like any other price, interest rate is also mainly determined by the demand and supply of credit. When there is a huge demand for credit, the rate of lending will tend to increase. Likewise, availability of funds is also a factor that determines the price. Excess liquidity in the banking system and the financial sector in general, shall lead to a lower interest rate, as there will be increased competition to provide credit.

As Maldives financial sector is dominated by commercial banks, bulk of lending is done by the banks, and the financial sector can be described as a ‘bank-based’ sector. For this reason, banks have exercised their ‘monopoly power’ and established a high lending rate which ranges between 8 – 13%. On the other hand, the deposit interest rate is as low as 2.25%. Despite the high interest rates in the banking sector, there is continuous frustration from the private sector on the issue of ‘access to finance’. The World Bank ‘Doing Business Report’ also always reports negatively on the issue. Any report on the financial sector of Maldives would highlight on it. In short, there exists a huge financing-gap in the real sector of Maldives, as the required, and desired amount of investments are not financed through the banking sector. And why should they?

The existing stock of Government Treasury Bills stands at MVR 11.7 billion. The risk-free one month T-Bill rate is 7.50%, while the 364 day rate is 9.0%.  So, if you can get 9% for one year, risk free government security, why would the banks ever think of lending to the ‘high risk’ private sector?

In order to make some sense out of this ‘outrageous’ interest rates, or in order to explain these high rates, we may need to look into certain fundamentals of the macro economy. In August 2010, the one-month T-Bill rate was below 4.50% while the 91-day T-Bill rate was below 5.50%. This was a time when T-Bills were auctioned in the market on a weekly basis. Hence, it is a rate determined through a market mechanism. The year 2010 was an year when Government budget had a deficit of 14.3% of GDP, and the annual total revenue of the Government was at MVR 6.5 billion. Fiscal dominance, fiscal discipline, high government demand, you can come up with all the technical terms to explain/justify.

However, at the end of 2014, the fiscal balance stood at only 3.4% of GDP, and total revenue for the year recorded almost MVR 15 billion. And yet, the one month T-Bill rate is fixed at 7.50%??? Do we still use the terms 'fiscal dominance', and 'lack of fiscal discipline', and high demand to justify these rates?

I think its time we moved towards a sensible interest rate regime. Its time MMA took the lead, and provide sound financial advice to the finance minister.

Why China matters

We at Maldives achieved a major milestone in 2013 when we recorded more than one million tourists by the end of the year. The world achieved the one billion mark in 2012 when it recorded more than a billion tourists crossing international borders for the first time, from 995 million in 2011. According to the World Tourism Organization (UNWTO), international tourism receipts reached more than one trillions US dollars in 2012, when it recorded US$ 1,075 billion worldwide. In 2012, China became the number one source market in the world, and recorded a total spending of US$ 102 billion on international tourism.

In 2013, China outbound tourists reached 97.3 million from 83.1 million in 2012. How much are we able to attract from this? Less than 1%. In fact, in 2012 we recorded 229,551tourists from China visiting Maldives, which is 0.28% of the total Chinese who traveled abroad during the year. In 2013 we attracted 331,719 visitors from China, which is only 0.34% of the total. So, even if we are able to attract 1%, we are looking at about a million tourists from China. The question is can we get there?

Looking at the arrival statistics of China tourists into Maldives, we had only 41,511 tourists from China in 2008, however, we had a 46% growth in 2009, and a 96% growth in 2010 when we recorded 118,961 by the end of 2010. Now China has become our number one source market, overtaking the European markets. A Maldivian airline, Mega Maldives Air played a key role in this development. An estimated 35% of the total Chinese arrivals are contributed by Mega, and in 2013 it is estimated that more than 95,000 Chinese visited Maldives via Mega Air. The state owned airline ‘Maldivian’, operated by Island Aviation, has also started flights to China, in addition to the Chinese local airlines like the ‘China Eastern’.

Well, I guess the point that I’m trying to make; as we talk about Chinese tourists, since China is expected to grow, we need to make further adjustments and come up with innovative plans to increase our share, to at least double the arrivals from China, and target to achieve at least one million from China by specified time period. That way, will be able to double our earnings from tourism.

Maldives Tax system review: What is the optimal tax rate on tourism?

We have been taught in school that the objectives of a tax are to raise government revenue, discourage the consumption of certain types of goods, and most of all to redistribute income and wealth. Government needs to raise revenue so that it can achieve its development objectives, and finance the services to be provided to the public and in the form of public goods, like roads, bridges, airports and ports. Some types of goods like alcohol, cigarettes, and environmentally harmful products are taxed heavily in order to discourage people from using or consuming such goods. Redistribution of income and wealth among the population is an important objective of taxation, as the government collects a higher percentage or a higher amount of money from the rich, and provides social-security benefits or subsidies to the poor, so that the income gap between the rich and the poor can be narrowed.

An efficient and effective tax system in trying to achieve those objectives mentioned above, also should be targeting to maximize social welfare by having the optimal tax structure. If the government’s fiscal policy ignores the concept of ‘optimal tax’, it can actually harm the aggregate production efficiency of the economy. In other words, if the government is careless and over-burdens the businesses by ‘over-taxing’, it can actually decrease the economic activities or production, leading to lower tax revenue over the medium to longer term. Hence, in order to increase the government revenue in the shorter-term we should not be recklessly increasing the tax rates or playing with the tax system.

Prior to the introduction of GST on general goods and services, we had the import tax or the import duties, which required the importer to pay a certain percentage of the value of the goods to Customs as duty, before even the goods are being cleared or sold to the customers. We replaced the import duties with GST, so that importer will not be paying any tax to the government before selling a product. When the customer buys the product, tax is paid and the seller collects it, pays it to the government. We have seen that total government tax revenue has actually increased, and increased significantly since the tax reforms brought in 2011. Has it hurt the aggregate production efficiency? In some areas yes. And with the proposed new changes to the tax rates, it may hurt even more. In the short term it can increase the government revenue, however, in the longer term it can do more harm, as total production may fall, and so can the total tax revenue in the medium term.

The issue of Withholding Tax (WHT) needs special mention, as I have been tackling this issue from the business side, both in my own business and also others whom I am advising. Under Section 6 and 7 of Business Profit Tax (BPT) Law, businesses are required to pay 10% of all the payments made to any foreign party for business services obtained.  The total amount of revenue raised through WHT comes to about 3% of total tax revenue of the State. It may be a huge burden for some individual companies to pay tax on the company’s expenditure paid to a foreign company, and at the same time pay tax on the net profit of the company. Most of the time, the foreign company will not allow to deduct the 10% tax from their payments. Hence, individual companies may face bankruptcy or incur a loss that threatens the continuity of the business. Had the government removed the WHT from the law and let go of the 3% revenue, many individual companies will benefit from it, and actually be paying more than 3% collectively as Business Profit Tax and GST.

Then comes the issue of Bed Tax. High-end resorts sell rooms for as high as $2,000 per night, and still pays $8 to the government. It’s just 0.4% of the room rate. However, a guest house selling a room for $50 per night also pays $8 per night as bed tax, but which is 16% of the room rate. Of course, it’s the guest who bears the tax. But for Tom Cruise who comes to ‘One & Only’, $2,008 plus GST may not be much for a night. However, for Markuss who is from a lower income level, even $58 plus GST may be too much for a night, especially, comparing this price to the same standard rooms in other countries. Most of all, considering the fact that Bed tax is very ‘unfair’ as both the rich and the poor pay the same amount, makes the tax regressive in nature. For this reason, it cannot be considered as part of an optimal tax structure.

GST on the other hand is more equitable, as a certain percentage is paid on the room rate and other prices, and those with higher incomes and who pays more for their services, will pay more as tax. At present, GST rate for tourism sector is 8%. Most of the resorts, hotels, and guest houses will also include service charge (normally 5-10%) in their prices, and add on GST. With this, guests will be paying more than 18% on top of the prices quoted for room and other services. If we increase the GST rate to 12%, with service charge, guests will be paying 23% more on top of the quoted prices. And if we continue charging bed tax that’s an additional $16 per night for a couple, and makes it 39% in addition to room rate. In the case of hotels in Colombo, it comes to about 26% with service charge and taxes. Which means, with bed tax, and GST of 12%, our tourism product will lose competitiveness, and may actually lead to Maldives becoming less attractive to tourists; especially mid-market tourists. In that case, total national income and total tax revenue may decrease over the medium and longer term. So, the tax rate or tax system should not be played as we wish, so as to increase short-term revenues. It has to be carefully analyzed, its impacts identified,  its optimal level determined, so that social welfare is maximized.

Maldives tourism tax policies

Back in 2011, the Government introduced a comprehensive tax system; whereby a Goods and Service Tax (GST) was introduced generally on all consumer goods and services for the first time in the history of Maldives. That is when so many international donors and development partners have been advising and recommending to introduce such a tax system long long ago, even when I first joined the Ministry of Finance in 1995. There have been many reports and documents by international donors like World Bank, ADB, and IMF on the importance of introducing Business Profit Tax, and GST. Well, I’m not sure exactly the reason, but the fact remains, it was not done!

When the new tax system was formulated, we were embarking on a huge economic reform program. This program was prepared after careful and consistent research of the Maldives economy, and after considering the recent international developments and its impact on the Maldives economy. We did a lot of work in terms of in-depth study of the Maldives exchange rate regime, and the dynamics of the Maldives economy. During my work at Maldives Monetary Authority (MMA) research division, I wrote a paper in 2010 on the real exchange rate of Maldives.

It was obvious from our research and analyses, that we had to increase our fiscal revenue, and that we cannot continue with huge fiscal deficits. Almost everybody working with us, those in MMA and those in Ministry of Finance agreed that monetization is not an option, and relying on printing Rufiya can never be a means of deficit financing. Printing Rufiya can only lead to increased inflation, and thus pressure on the dollar.

I was working as a State Minister at Ministry of Finance, and we worked real hard during those one year, when we actually saw the drafting of the bill, passing of the law, and enforcement of the law by collecting the tax money. We spend days and nights educating and creating awareness on the new tax laws. We did presentations to the MPs first, so that they can pass the bills after having a understanding of what they are actually passing. We educated the Police, MNDF, political party members, school children, and the general public through various presentations, TV and radio interviews.

We met with almost all the major resort owners, and briefed them on the state of the economy, and almost all of them supported us, and were prepared to provide their cooperation in bringing the economic reforms.

We had a lot of support from the MIRA, and we worked very closely with the entire team there. We abolished the import duties of many consumer goods being imported into the country, and we reduced the import duties of various other items. To compensate,  we introduced GST on general goods, with exclusions on very basic food and other consumer goods and services.

We proposed the abolition of the $8 bed tax after a grace period, so that the tourism sector will be taxed at a rate of 8%. We considered the price elasticity and the income elasticity of our tourism product, and worked on the optimal tax rate that cannot harm the competiveness. Hence, the following tax rates were passed for the tourism sector when it actually became law.

From the introduction until 31^st December 2011 – 3.5%

1 January 2012 to 31^st December 2012 – 6%

1 January 2013 onwards – 8%

Resorts, hotels, tour operators and travel agents always had the complaint of too many changes and within such a short period of time. And this complaint will always be there and it’s a valid one too. As holiday bookings are made so many days in advance, and also promotional materials are printed beforehand, any changes to the tax regime or the tax rate has to be known at least one year in advance. The 3.5% in 2011 made sense, as many businesses actually absorbed it and paid from their profits, in order to not to burden the agents or the customers. The rates in 2012 and from 2013 onwards were being given enough notice, and we all had certainty that it won’t change. Our understanding when we were working on the new tax policies was that tax rates will not and should not be going up after this, and it actually should be going down year by year, as we move on to fiscal surpluses.

We believe that even without increasing the tax rates, we can still have high tax revenues as we expand our production, and as we make new investments. As we cannot continue increasing the tax rates on tourism every time a new government comes into power and every time a new government project or pledge has to be fulfilled. Any changes to the tax rates has to be brought after careful analysis of its impacts on the tourism competitiveness, and the impact on the overall tax revenue in the medium to longer term. Rather we need to focus our attention in increasing more businesses, investing on tourism infrastructure so that we can increase the arrival numbers so that tax revenue can increase.