The amendment aims to address "tourism leakage," where revenue from the sector flows out of the Maldives, by changing the GST payment method to the "destination principle."
The GST Act will be amended next year to recover lost revenue through the tourism sector, according to the Finance Ministry.
The amendment aims to address "tourism leakage," where revenue from the sector flow out of the Maldives, by changing the GST payment method to the "destination principle."
The destination principle is a concept in international taxation that allows value-added taxes (VAT) to be retained by the country where the taxed product or service is sold. This change will also apply to goods and services sold online, ensuring they are subject to taxation in the Maldives.
The amendment will also impose higher tax rates on prices charged by online travel agents. A technical official from the Finance Ministry said that there is a significant discrepancy between the prices resorts charge to agents and the prices those agents charge tourists.
For instance, a five-star resort in the Maldives might sell a room to a foreign agent for USD 500, but the agent could then sell the room to tourists for USD 1,750. Currently, the Maldives Inland Revenue Authority (MIRA) would only receive USD 80 in taxes from the initial sale, whereas a direct sale at USD 1,750 would yield USD 280 in TGST. This practice results in a loss of about 70 percent in taxes when rooms are sold through agents.
The adoption of the destination principle will also allow the Maldives to collect tax revenue from online platforms used by the public. Individuals selling goods purchased from platforms like Shein and Amazon will be required to pay GST on those sales.
Countries such as Sri Lanka, Australia, Canada, and Singapore have already implemented GST under this principle.
The government plans to introduce this tax approach by mid 2025.
In addition to expanding the tax base, the government plans to increase revenue by raising the Airport Development Charge (ADC) and green tax.
In a statement to the parliament's Public Accounts Committee, Finance Minister Mohamed Shafeeq said that the state plans to amend its medium-term debt strategy. He said that the state intends to revise its revenue generation policies to facilitate debt repayment and avoid depleting state funds. Alongside efforts to increase revenue, the government is preparing to implement significant expenditure reductions.
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