The Parliament has passed amendments to the Goods and Services Tax (GST) Act to begin collecting tax on goods and services provided by offshore booking platforms, foreign tour operators, and travel agents.
The bill was passed with support from some members of the opposition Maldivian Democratic Party (MDP). A total of 54 members voted in favor of the bill, while two members voted against it.
The bill, introduced on behalf of the government by Kulhudhuffushi MP Mohamed Dawood, states that these changes are intended to implement the "destination principle" in the Maldives. This measure was initially proposed by the government in the budget approved for the current year.
Although the opposition MDP supported the bill, its members requested extensive consultations with industry experts, noting that the legislation directly impacts the tourism sector and taxation policies.
However, the Committee of the Whole House reviewed and passed the bill without conducting any such consultations.
The bill proposes amending clauses which previously stipulated that GST is only applicable to goods sold within the Maldives, changing the language to ensure GST is levied on all goods and services provided in the country. Furthermore, it seeks to amend provisions that limited the scope of taxable goods to those sold by businesses operating physically within the Maldives, which currently applies only to local businesses.
The amendments define what constitutes goods and services provided in the Maldives and specify the types of business activities subject to taxation, specifically targeting foreign tourism businesses.
Additionally, the scope of tourism sector goods and services has been expanded to include inbound tourism products provided by entities without a permanent place of business in the Maldives. The bill also includes a detailed definition of "charter" to target charter trips sold by safaris.
The government proposes to implement these changes starting October 1, with these goods and services taxed at the current Tourism Goods and Services Tax (TGST) rate of 16 percent.
Overall, the legal amendments aim to remove statutory barriers to collecting GST from businesses that send tourists to the Maldives.
According to the cost estimate attached to the bill, the state will incur an expenditure of MVR 7.9 million to implement these changes. This includes a one-time cost of MVR 2.8 million and an annual recurrent expenditure of MVR 5.1 million for additional staff.
By taxing foreign businesses under the destination principle, the government estimates an annual revenue increase of MVR 1.6 billion. This projection includes MVR 299.3 million from overseas travel agents and MVR 1.3 billion from foreign tour operators.
As TGST must be paid in foreign currency, this revenue increase is expected to bring an additional USD 104.1 million into the state coffers.
The government stated that since offshore booking platforms, tour operators, and travel agents are not established in the Maldives, they will begin paying GST once the Maldives Inland Revenue Authority (MIRA) establishes communication channels and simplified tax payment arrangements for them.
The government further noted that estimated revenue is expected to grow as these businesses begin paying GST and as MIRA continues to strengthen its engagement with such entities.
