B. Soneva Fushi Resort: It rents Villas long-term. Photo/Soneva

MPs concerned over low tourism real estate tax; MVR 447m revenue loss projected

Velidhoo MP Shafeeg said that if TGST is charged at 16% as it is now, 50 transactions alone will generate MVR 596.32 million per annum.

25 October 2023

By Ahmed Naif

MPs on Wednesday expressed concerns about the government's proposal to abolish Tourism-Goods and Services Tax (T-GST) on long-term rentals of villas or rooms in Maldives' resorts and replace it with a 4% real estate tax.

The Tourism Act Amendment Bill, which was introduced by Kendhikulhudhoo MP Ahmed Esa in parliament last month, states:

  • If a villa or room in a tourist resort or integrated tourist resort is rented out on a strata basis for a long period of time, a real estate tax of 4% will be levied on the total value of the transaction

  • Such transactions will be exempt from T-GST; Currently, such transactions are also subject to 16% T-GST

When the bill was opened for debate in parliament on Wednesday, MPs expressed their support for the change in principle but expressed concern over the level of tax proposed in the bill for real estate tax and the huge revenue loss to the state.

In the debate, Hulhudhoo MP Ilyas Labeeb said that the richest people in the world buy villas from resorts. However, a tax of only 4% on the long-term rental of such a villa is not appropriate, he said. It is unfair, he said, adding that the tax charged when Maldivians buy flats is even higher.

"When people are buying flats at such a high price, charging such a low tax on the richest people in the world is not an acceptable rule. We need to bring a balance to this. There is no problem if 4% is fixed in this way, if we deduct GST on the cost incurred by Maldivians to find a shelter while buying a flat," Ilyas said. 

Meanwhile, Kelaa MP Ibrahim Shareef also said that the proposed amount of real estate tax should be increased. He also said that 8% GST is charged when Maldivians buy a flat. The amount charged on foreigners for such transactions in Maldives should be much higher, he said.

Govt estimates MVR 447m revenue loss

Velidhoo MP Mohamed Abdullah Shafeeg said finance ministry's own estimates on the implications of the amendment show a major loss to the state.

"The figures show that revenue is being lost significantly. We as MPs should think about this while amending the bill. This is my biggest concern," Shafeeg said.

The summary of the cost estimate of the finance ministry sent to parliament with the bill shows:

  • If T-GST is charged at 16% as it is now, 50 transactions alone will generate MVR 596.32 million per annum

  • The revenue will decrease to MVR 149.08 million if real estate tax is levied at the proposed 4%

  • The change is expected to cost MVR 447 million annually

MPs concerned over undeveloped resort islands

All the MPs who spoke during the debate on the tourism bill expressed their concerns about the tourism industry. The biggest concern raised by the MPs was that several islands allocated for resort development in their constituencies have not been completed for a long time.

Velidhoo MP Shafeeg said six islands in his constituency have incomplete resort projects. While there is no way to take back the islands, economic benefits from them have been blocked, he said. He said that due to this, many residents of the constituency have lost their job and income opportunities. 

However, he hopes that the current proposed amendment to the Tourism Act will pave the way for the launch of a new type of tourism. He said this would facilitate the sale of individual islands built by dredging the same lagoon and the construction of unbuilt islands.

Hulhudhoohoo MP Ilyas said that planned changes should be made to take tourism to areas where tourism has not developed and islands have not been completed. He said concessions should be given to attract investors. He proposed:

  • Import duties should be exempted altogether 

  • All taxes exempted for the first three years

  • 50% cut in taxes for an additional seven years

  • These concessions should also be given to guesthouses

"There is a need to develop ways to expand this tourism economy to different parts of the country. H.A, H.Dh, Sh, Addu, Fuvahmulah, Huvadhoo; there is a need to explore ways to expand tourism in these places. Can they pay taxes? Can they operate? What will be the progress that will come when these changes are made?," Ilyas stipulated.