Measures needed to increase Maldives' tax revenue: IMF

Maldives needs to adopt additional measures to raise tax revenues, along with strengthening customs and tax administration, said International Monetary Fund (IMF) in following its 2024 Article IV consultation with Maldives.

According to the report, the country needs to strengthen its medium term revenue strategy significantly.

Some of the recommendations provided in the report include lowering personal income tax (PIT) thresholds and personal allowance while raising the top marginal PIT rate as well as increasing the statutory rate of corporate income tax. IMF also recommends to rationalise import duty exemptions, apply excises on tobacco, fuels, alcoholic products, and motor vehicles, and impose carbon levy on fuels.

"Adopting additional measures to raise tax revenues, along with strengthening customs and tax administration, would yield sustained fiscal savings to increase the probability of approaching and achieving fiscal and debt sustainability," the report further reads.

It also highlighted the findings of IMF's Public Investment Management Assessment (PIMA). The report said that several weaknesses were identified in public investment financial management related to budget credibility and budget execution.

"In this regard, infrastructure development projects need to be realistically costed, appraised, and subject to transparent and rigorous project selection process for inclusion in the annual budget. Enhancing fiscal institutions and the public financial framework would enable the authorities to conduct more effective project appraisals and costings," the findings detailed.

As such IMF called for reforms to develop a strategic and focused Public Sector Investment Programme (PSIP) and to expedite the formulation of a costed medium-term national development strategy.

It also detailed that "authorities should strengthen strategic guidance and budget ceilings for public investment, in line with the fiscal strategy statement. A ceiling for the PSIP budget included in the budget circular at the start of the budget process based on a binding resource envelope should be respected."

IMF also warned about the country's need to manage its debt though a realistic and credible multi-year debt management strategy.

"Finalising the Public Debt Management Law and completing the reform of the Fiscal Responsibility Act (FRA) should be part of a broader credible plan that puts debt on a sustainable path, including by setting and disclosing realistic numerical targets for the fiscal deficit and public debt in a subsequent Charter of Fiscal Responsibility to support compliance and accountability," IMF strongly urged.

Another area of concern underscored in the report was Maldives' excess structural liquidity which poses risks to the country's economic stability. Criticising MMA's over-accommodative monetary policies, IMF detailed that increased MMA advances and subsequent securitisation of monetary financing have translated into central bank liquidity injection and large excess structural liquidity in the system.

"MMA, as both financial regulator and supervisor, should issue regulatory standards to clarify the enforcement regime, reevaluate off-site monitoring procedures, and strengthen the independence of MMA’s Board of Directors," it also suggested.

The Article IV consultation is an annual bilateral discussion held with members as per Article IV of IMF's Articles of Agreement, where a staff team from IMF visits countries, collects economic and financial information which is then discussed with officials. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board, which is then published.