Airport development fee to be introduced in 2017

A controversial Airport Development Charge for passengers flying out of the Ibrahim Nasir International Airport was voted through by the ruling party-dominated parliament Thursday night.

The government’s plan to introduce a US$25 ADC for both locals and tourists next year had divided opinion among ruling party MPs with several declaring that they could not support levying the fee on Maldivians.

However, government-sponsored legislation for imposing the ADC was passed with 48 votes from ruling coalition lawmakers, who amended the bill to charge US$12 for Maldivians and US$25 for foreigners.

The amendment to lower the fee for locals was proposed by MP Asma Rasheed of the ruling Progressive Party of Maldives – who previously assured the public that Maldivians would be exempted – and seconded by Majority Leader Ahmed Nihan.

Nihan later thanked President Abdulla Yameen and the PPM parliamentary group for reducing the ADC for Maldivians whilst Asma told local media that the president made the concession when ruling party lawmakers raised concerns.

The ADC will be introduced four months after ratification and is likely to come into force on April 1. Officials with diplomatic immunity will be exempt but transit passengers must also pay the fee.

Airlines will be responsible for collecting the ADC and making payments to the Maldives Inland Revenue Authority. Failure to comply will be punishable under taxation laws.

The new fee comes on top of an existing airport service charge. Maldivians currently pay US$12 and foreigners pay US$25. But officials with diplomatic immunity, transit passengers, and children below two years of age are exempt from the service charge.

During the debate on the legislation, opposition lawmakers said the ADC should only be imposed after developing the airport. The new fee will disproportionately affect the poor and middle-class citizens, they contended, as it would lead to a hike in ticket prices.

Minority Leader Ibrahim Mohamed Solih questioned whether the ADC would increase tax revenue to the government from the tourism industry.

A wealthy tourist who spends US$1,000 a night at a high-end resort might not be affected, Solih said, but tourists staying at US$50-a-night guesthouses could baulk at spending an extra US$25 for airfare.

The ADC was among a raft of new taxes proposed in the 2017 state budget to raise MVR2 billion (US$130 million) in additional revenue.

In his budget speech, Finance Minister Ahmed Munawar said proceeds from the ADC – an estimated MVR565.8 million next year – will be used to set up a “sovereign development fund” as a long-term fiscal reserve to repay debt.

The International Monetary Fund warned earlier this year that the Maldives is facing “a high risk of external debt distress” due to large increases in capital spending – including the China-Maldives Friendship bridge and the INIA expansion – which are entirely financed through external loans.

Indian developer GMR’s plans to introduce a US$25 ADC in January 2012 was a major point of contention that led to the cancellation of its concession agreement to upgrade INIA, despite GMR’s offers to exempt Maldivians.

A Singaporean arbitration tribunal ruled last month that the Indian infrastructure giant is owed at least US$250 million in damages for the abrupt termination of the airport development deal.

A report by the former auditor general had found that concession revenue by GMR paid to the government plummeted fourfold as a result of a civil court ruling that blocked the developer’s charging of the US$25 ADC, on the grounds that it was a tax that was not approved by the parliament.

The bill on collecting taxes and fees from departing passengers was meanwhile fast-tracked through parliament. After it was debated and sent to committee in the morning, a second sitting was held Thursday night to vote on the bill.

The second sitting was originally scheduled for Thursday afternoon but was delayed due to a lack of consensus within the PPM’s parliamentary group, which was reportedly divided between MPs who wanted to pass the bill as proposed by the government and others who wanted to either exempt Maldivians or reduce the fee to US$12.

The People’s Majlis broke for recess after Thursday’s sittings. The next session will begin in February.