Ministry of Finance has revealed that Goods and Services Tax (GST) and Tourism Goods and Services Tax (TGST) will be hiked to increase state revenue.
Speaking at a press conference, Minister of Finance Dr. Ibrahim Ameer said the government has decided to implement tax hikes in response to changes in the global market and in accordance with the current economic situation, which threatens to become worse if no measures are taken. Minister Ameer said that the government will be decreasing expenditure and implementing a variety of measures to increase state revenue. As such, he said that TGST will be increased from 12% to 16% and GST will be increased from 6% to 8%.
Furthermore, Minister Ameer said that the government is in discussions to wait six months for taxpayers to prepare for the changes and noted that the tax rate in the Maldives is lower than other small developing countries. He said that the state revenue would only reach USD2 billion by 2025 if the policies are not changed immediately and that the government would be forced to propose a USD3 billion budget in 2023 if spending is not decreased. He said that these amounts would be a financially unfeasible response to the changes in the global market and economy. He highlighted that the rate of global inflation is much higher than the worth of the Sukuk bonds the government sold as part of efforts to reduce budget deficit and debt in response to the COVID-19 pandemic. He added that government expenditure should be controlled despite the increase in tourist arrivals.
Additionally, Minister Ameer said that the government will be implementing policy changes to increase state revenue in a way that does not interrupt essential public services. He noted that the government has so far spent USD60 million this year to decease the cost of electricity and spent USD20 million to provide discounts for electricity and water supply services. He also said that the government plans to decrease spending by implementing subsidy reforms to decrease the reliance of state-owned companies on the state budget as well as halting plans to commence any new government projects.
Minister Ameer further highlighted that the Maldives is among the fastest-growing economies, despite the Gross Domestic Product (GDP) contracting by 33% in 2020. He said the GDP is expected to grow by 13-16% this year, making the Maldives the second-fasting growing economy among Asian countries following the pandemic, thanks to the measures implemented by the government.