In a sweeping reform aimed at reclaiming lost revenue, the Maldives is set to amend its Goods and Services Tax (GST) Act next year, targeting the pervasive issue of “tourism leakage.”
This term refers to the alarming trend where significant amounts of revenue generated by the tourism sector slip through the cracks, flowing out of the country rather than enriching its coffers.
The Finance Ministry has proposed a shift to the “destination principle” for GST payments, a strategy that has been gaining traction in international taxation. This principle allows value-added taxes to be retained by the country where goods and services are consumed. Under this new framework, not only will traditional tourism services be taxed more effectively, but online sales will also fall under the same umbrella, ensuring that purchases made through platforms like Shein and Amazon contribute to the Maldivian economy.
Currently, the disparity between the prices charged by resorts and those sold to tourists through online travel agents is staggering. For example, a five-star resort might sell a room to an agent for USD 500, which the agent then marks up to USD 1,750 for the tourist. This results in a mere USD 80 in taxes for the Maldives Inland Revenue Authority (MIRA) from the initial sale, while a direct sale would yield USD 280. Such practices have led to a staggering loss of approximately 70 percent in potential tax revenue.
The Finance Ministry’s technical officials have underscored the need for this amendment, pointing out that the current system is unsustainable. By adopting the destination principle, the Maldives aims to not only plug the revenue leaks but also to ensure that online platforms contribute their fair share to the national treasury.
In addition to this pivotal change, the government is also looking to bolster its revenue streams by increasing the Airport Development Charge (ADC) and green tax. Finance Minister Mohamed Shafeeq has indicated that these measures are part of a broader strategy to revise the state’s medium-term debt approach, aiming to enhance revenue generation while simultaneously curtailing expenditures.
With plans to implement these changes by mid-2025, the Maldives is poised to take significant strides in securing its financial future, ensuring that the wealth generated from its thriving tourism sector is reinvested back into the nation.
