New airport fees and ‘congestion tax’ among revenue-raising measures for 2017

A US$25 airport development charge, a “congestion tax” and increased import duties for tobacco and fizzy drinks are among a raft of revenue-raising measures proposed in the 2017 state budget.

Finance Minister Ahmed Munawar announced the new taxes in his budget speech to the parliament this morning. The government expects to raise MVR2 billion (US$130 million) in additional revenue.

• MVR565.8 million from airport development charge
• MVR500 million from land sales for economic purposes under the government’s home ownership policy
• MVR500 million as acquisition fees from Special Economic Zones
• MVR209 million from hiking import duties for tobacco and fizzy drinks
• MVR261 million from a congestion charge to reduce the number of vehicles in Malé
• MVR12 million from selling licenses for taxi and pickups

A US$25 airport service charge is currently levied on departing foreign passengers.

The Airport Development Charge will be levied on both international and domestic passengers departing from the Ibrahim Nasir International Airport.

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

According to the 2017 budget, the government expects to sell 500,000 square feet of reclaimed land for guesthouses and other ventures at a rate of MVR1,000 per square feet.

A “congestion fee” will meanwhile be introduced for four-wheeled and two-wheeled vehicles in the Malé region. The unspecified fee will be introduced through a “policy change,” reads the budget document.

“This fee is taken in some other countries with large populations,” it added.

However, 400 licenses or permits to operate taxis and pickups will be sold in 2017 at a rate of MVR30,000.

Hiking the import duty for tobacco from MVR1.25 to MVR1.75 per cigarette will be “an important step to encourage reducing smoking”, the finance ministry said, adding that the change will also result in about MVR200 million in additional revenue.

The price of a pack of cigarettes is expected to rise from about MVR48 to MVR65 or MVR70.

“Fizzy drinks and energy drinks cause adverse health effects [but] many children consume them, too. In order to reduce the number of people who consume such drinks, a 20 percent ad valorem tax has been proposed for fizzy and energy drinks,” states the budget.

Despite failing to collect US$100 million as acquisition fees from investments in Special Economic Zones in both 2015 and 2016, the government once again hopes to raise MVR500 million from SEZ acquisition fees this year.

During the evaluation of this year’s budget in November 2015, Economic Development Minister Mohamed Saeed, chairman of the SEZ investment board, told MPs that the government has “very high confidence” that the foreign investments will materialise in 2016.

Opposition MPs had expressed scepticism over “unrealistic” revenue targets.

According to the 2017 budget, a further MVR1.4 billion could be raised by increasing the dividend policy of state-owned enterprises by 60 percent.

Some MVR21.5 billion was forecast as revenue for 2016, but Munawar told MPs today that the government is expected to collect MVR18.2 billion by the end of the year.

With spending projected to reach MVR22.5 billion, a fiscal deficit of MVR4.3 billion or 4.4 percent of GDP is expected, he said.