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International Monetary Fund. Fiscal Affairs Dept.
This report reviews the Goods and Services Tax (GST) regime in the Maldives and identifies policy and legal reform options to support its modernization, as well as enhancing efficiency, equity, and revenue mobilization. Despite five existing amendments to the Goods and Services Tax Act (GSTA) and 28 amendments to the associated regulations, the core parameters of the GST have barely changed in nearly 12 years. In addition, rapid changes to global business models and the increasing digitalization of the Maldivian economy have made key features of the legislation – such as place of supply rules – increasingly inadequate. The mission identified several key GST policy reforms and proposed legal redrafting recommendations that should be prioritized by the authorities in the upcoming reform window. Table 1 summarizes the potential revenue implications and implementation timeline of the main policy measures proposed.
International Monetary Fund. Fiscal Affairs Dept.

Goods and Services Tax Act HIES Household Income and Expenditure Survey IMF International Monetary Fund LVIG Low-Value Imported Goods MIRA Maldives Inland Revenue Authority MOF Ministry of Finance OECD Organization for Economic Cooperation and Development OTA Offshore Travel Agent P2P Peer-to-Peer SAARC South Asian Association for Regional Cooperation SME Small and Medium Enterprise TAA Tax Administration Act TGST Tourism Goods and Services Tax TPU Tax Policy Unit

International Monetary Fund

recognizing the difficult political situation facing the authorities, Directors stressed the need for decisive and comprehensive adjustment measures to achieve macroeconomic stability, sustainable growth and poverty reduction. Efforts to strengthen the financial sector and improve the business climate will also be critical. Directors welcomed the progress made in the implementation of fiscal adjustment measures, which had led to a significant reduction in the budget deficit. They also welcomed the passage of the tourism goods and services tax and of the business profit

International Monetary Fund. Asia and Pacific Dept

Tourism Goods and Services Tax (TGST), would place debt ratios on a sustainable path. Overall Maldives is judged to face a moderate risk of external debt distress, based on an assessment of public external debt, but a heightened overall risk of public debt distress, reflecting the significant and high vulnerabilities related to domestic debt. There are also potential additional risks to external debt if the increase in public debt is financed to a greater extent from external sources than currently assumed . Front Matter Page Press Release No. 15/92 FOR

International Monetary Fund

1/ 0 0 2 796 802 63 2,834 1,734 1,382 3,351 1,906 Tourism goods and services tax 0 0 0 358 358 0 1,604 928 933 1,857 1,136 Business profit tax 0 0 0 293 300 0 588 613 260 634 570 Other 0 0 0 146 144 63 642 193 189 860 200 Nontax revenue 3,586 3,530 2,562 3,327 3,297 3,198 3,593 3,580 3,114 3,764 3,741 SOE profit transfers 789 1,015 677 539 540 1,072 565 721 721 625

International Monetary Fund
Owing to severe fiscal and external imbalances, the Maldives government adopted an IMF program in 2009. Despite some crucial initial actions, fiscal slippages and political polarization have undermined the restoration of sustainability. The key policy challenge is to prevent a fiscal crisis, achieve macroeconomic sustainability, and stimulate growth. The authorities concur with the need to tighten monetary policy. The authorities have welcomed the IMF program as a useful framework to guide and reinforce their efforts to restore external balance and fiscal sustainability.
International Monetary Fund. Asia and Pacific Dept

.5 percent of GDP in 2013); external debt estimates are lower; and while the large fiscal deficit has continued to widen following increases in recurrent spending, measures in the 2015 Budget and earlier increases in taxes, including the Tourism Goods and Services Tax (TGST) should help to rein in the deficit. The primary deficit is therefore projected to narrow–but not sufficiently to bring debt ratios down. Consistent with these developments, the main changes in the macroeconomic assumptions in the 2014 DSA compared to those contained in the IMF’s 2013 Article IV Staff

International Monetary Fund. Asia and Pacific Dept

bridge toll (commercial and leisure) and an increase in airport departure tax. Broadening the base of business profits tax and increasing rates on some taxes should be feasible as the business profits tax rate is low compared to the Asia Pacific region and the tourism goods and services tax is not out of line with other competitor economies. Expenditure saving . The authorities focus on the public sector wage bill is welcome. Staff suggested that the public service review should be restarted taking time to plan and implement it, while ensuring key functions are

International Monetary Fund

fiscal stance and insufficient fiscal adjustment measures. 13. Under an illustrative fiscal adjustment scenario, the risk of debt distress falls significantly . Staff’s adjustment scenario is based on baseline policies, plus the following additional fiscal adjustment measures: significant public sector redundancies; a tightening of capital and operating expenditures over 2011–13; introduction by July 2011 of excises on a number of goods; and a revision to the Tourism Goods and Services Tax so that the tax rate rises to 6 percent when the tourism bed tax expires at

International Monetary Fund. Asia and Pacific Dept

) 1/ Countries include Mauritius, Seychelles, Bahamas and Barbados. Sources: Authorities data and IMF staff estimates. 7. Encouragingly, significantly better revenue performance contained the fiscal deficit . The 2014 fiscal deficit is estimated by staff to have reached 9.1 percent a significantly better outturn compared to 11.6 percent of GDP expected in the previous Article IV Consultation. In 2015 revenues were further buoyed by fiscal measures including the increase in the tourism goods and services tax (TGST) rate, higher business profits tax revenue (BPT