MPs on the parliament’s budget review committee questioned ministers today about targets in the 2016 budget after revenue this year fell far short of forecasts.
Presenting a record MVR27.4 billion (US$1.7 billion) state budget for 2016 last week, Finance Minister Abdulla Jihad had said that MVR21.5 billion was expected in revenue, although the government will only have earned MVR17.7 billion by the end of the year.
Despite failing to realise some US$100 million as acquisition fees from investments in Special Economic Zones (SEZ) this year, the government once again hopes to raise MVR1.5 billion (US$100 million) from SEZs next year.
Opposition MPs have criticised the proposed measures – which aim to generate MVR4 billion in additional revenue – as “unrealistic.”
Economic Development Minister Mohamed Saeed, chairman of the SEZ investment board, told MPs today that the government has “very high confidence” that the foreign investments will materialise in 2016.
Saeed said the government is working on two main projects: a transhipment port in the northernmost atoll and relocating Malé’s commercial port to Thilafushi and developing a free trade zone on the industrial island. Progress has been made, he said, noting that the US-based Boston Consulting Group has completed the feasibility study for the iHavan transhipment port project.
Negotiations with Dubai Ports World for the Thilafushi port project, however, ended unsuccessfully.
Other revenue raising measures in the budget are:
- MVR1 billion from leasing reclaimed land
- MVR462 million from leasing 10 islands for resort development
- MVR462 million as income from islands and lagoons leased for tourism
- MVR400 million from home ownership programme
- MVR56 million from introducing a three percent remittance fee for expatriates
- MVR38 million from a land sales tax, or 15 percent tax on sale of apartments
- MVR30 million from revising revenue stamps law
- MVR25 million from leasing islands for fisheries and agriculture
- MVR13.5 million from revised rents of state-owned enterprises.
Speaking on the proposed measures, Fisheries Minister Dr Mohamed Shainee, co-chair of the cabinet’s economic council, said the government plans to reclaim land from shallows and lagoons near Malé and develop new tourist resorts.
The government will also lease land reclaimed in inhabited islands for commercial ventures, he added.
Saeed noted that the state-owned Maldives Transport and Contracting Company has made a downpayment to procure a dredger for the land reclamation projects.
The forecast revenue from land reclamation is “a conservative figure,” he said
On introducing a three percent remittance fee from expatriates in June 2016, Saeed said about 135,000 expatriates currently work in the Maldives, but the figure will rise with the launching of infrastructure projects and opening of new resorts.
As statistics from the central bank show an “outflow” of US$408 million a year as remittance from foreign workers’ wages, Saeed said the proposed three percent is “a very nominal fee.” The government is now in the process of formulating rules and procedures for collecting the fee.
At yesterday’s budget committee meeting, MPs had expressed concern with plans to introduce a 15 percent tax on the sale of apartments and flats. MPs noted that a six percent Goods and Service Tax is already charged for real estate transactions.
The land sale tax currently applies only to the sale of plots of land.
Following a meeting lasting nearly four hours, the committee approved the proposed revenue raising measures without any revisions.
MPs of both the opposition and ruling parties also spoke in favour of introducing a progressive income tax to “complete” the Maldives’ tax regime.
But Jihad said today that the government does not have plans to introduce the tax at present as the tax base in the country is too small. Very few Maldivians earn more than MVR100,000 a month, he said, and both wealthy businessmen and sole proprietors who earn income from renting properties pay GST and business profit tax.
Jihad also said the Maldives would lose “competitiveness” if a minimum wage is enforced as cost of production will rise and national productivity will decrease. He suggested that the government offsets the lack of a minimum wage by providing free health insurance and subsidies for foodstuff and electricity to the public.
In his budget speech last week, Jihad said that economic growth in 2015 was slower than expected. The government forecast a growth rate of 8.5 percent, but Jihad said the revised rate is now 4.8 percent.
Jihad said one of the reasons for the slower growth rate was lower than expected tourist arrivals. The government had forecast 1.4 million arrivals, but Jihad said the figure is likely to reach 1.25 million by the end of the year.
The government’s forecast for economic growth in 2016 is 6.4 percent.
As a result of low oil and commodity prices in the global market, Jihad said the inflation rate was 1.4 percent at the end of September.
But the current account deficit is expected to widen to US$400 or 11.6 percent of GDP this year, Jihad said, attributing the increase to “mega projects” launched by the government.
The international reserve will meanwhile stand at US$590 at the end of 2015, he said.