Front Matter

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IMF Country Report No. 22/187

MALDIVES

TECHNICAL ASSISTANCE REPORT––MODERNIZING THE GOODS AND SERVICES TAX

June 2022

This Technical Assistance Report paper on Maldives was prepared by a staff team of the International Monetary Fund. It is based on the information available at the time it was completed in March 2022.

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Title Page

FISCAL AFFAIRS DEPARTMENT

Maldives

Modernizing the Goods and Services Tax

Maria Coelho, Lee Burns, and Peter Mullins

Technical Report

March 2022

Contents

  • ABBREVIATIONS AND ACRONYMS

  • PREFACE

  • EXECUTIVE SUMMARY

  • I. INTRODUCTION

  • II. TAX POLICY FRAMEWORK OF THE GOODS AND SERVICES TAX

  • A. Revenue Productivity and Taxpayer Characteristics

  • B. Dual Rate Structure and Ring-Fencing of Tourism

  • C. Incidence and Rationalization of Exemptions and Zero-Rated Goods/Services

  • D. Treatment of the Digital Economy

  • E. Other Design and Implementation Issues

  • III. LEGAL FRAMEWORK OF THE GOODS AND SERVICES TAX

  • IV. REFERENCES

  • FIGURES

  • 1. Maldives and Comparators: VAT Revenue, 2007-2019

  • 2. Maldives and Comparators: VAT C-Efficiency, Latest Available Year

  • 3. Distribution of GST Payments Based on Turnover, 2019

  • 4. Share of GDP Generated by Direct Travel and Tourism and Tourism Services as a Share of Exports, top Countries 2019

  • 5. GST/VAT in Small Island Developing States

  • 6. Maldives and Comparators: Internet Users in Total Population

  • 7. Average Annual Change in E-Commerce Sales

  • 8. Maldives and Comparators: Digitally Deliverable Services

  • 9. Maldives: Relative Demand for Digital Media

  • 10. Average Income from Airbnb Inc. by Country vs Indirect Tax Thresholds

  • 11. Global Travel and Tourism Revenue by Sales Channel

  • TABLE

  • 1. Revenue Impact and Timeline of Main Policy Recommendations

  • ANNEXES

  • I. GST Treatment of Real Estate in Small Tourist-Dependent Countries

  • II. Design Issues for B2C Taxation of Imported Services

  • APPENDIX TABLE

  • 1. Best Practices for VAT Treatment of Real Estate Transactions

Abbreviations and Acronyms

B2B

Business-to-business

B2C

Business-to-consumer

BPT

Business Profit Tax

BPTA

Business Profit Tax Act

CD

Capacity Development

EBITDA

Earnings Before Interest, Taxes, Depreciation and Amortization

GAAR

General Anti-Avoidance Rule

GDP

Gross Domestic Product

GGST

General Goods and Services Tax

GST

Goods and Services Tax

GSTA

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

VAT

Value-Added Tax

Preface

In response to a request from the Maldivian Ministry of Finance on October 17, 2021, a remote technical assistance mission was conducted during January 6-24, 2022, comprehensively reviewing the existing Goods and Services Tax (GST) legislation and proposing concrete priority reforms to be included in a GST Act amendment. This mission of the International Monetary Fund's (IMF) Fiscal Affairs Department (FAD) comprised Ms. Maria Coelho (head), Mr. Lee Burns and Mr. Peter Mullins (both FAD external experts).

The mission had several rounds of productive discussions with the following officials and members of their staff: Minister of Finance Ibrahim Ameer and Mr. Ahmed Saruvash Adam (Ministry of Finance, MOF), Ms. Mariyam Juwairiya, Mr. Arshad Jameel, Ms. Aishath Hasna Ahmed, Mr. Mohamed Raaidh, and Ms. Nadheema Latheef (Tax Policy Unit -TPU - members and consultants). The mission also met with staff from the Maldives Inland Revenue Authority (MIRA), including Commissioner General Fathuhulla Jameel, Ms. Asma Shafeeu, Mr. Mohamed Ali Waheed, Ms. Aminath Zumra, Ms. Mariyam Jaidha, Mr. Ibrahim Rasheed, Mr. Ali Muaaz, Mr.

Hussain Amir, and Ms. Fathimath Amaanee Khalid. The mission met with multiple representatives from the Ministry of Economic Development, Ministry of Tourism, and USAID consultants to MOF. Finally, the mission also met private sector representatives including PwC Maldives, CTL Strategies, S&A Lawyers, the Maldives Association of the Tourism Industry, the Maldives Association of Travel Agents and Tour Operators, and the Maldives National Chamber of Commerce and Industry.

A half day workshop was provided to the authorities on international best practice for Value-Added Tax (VAT) coverage of the digital economy, with participants from MOF, MIRA and the Tax Appeal Tribunal.

The mission is grateful for the collaboration of the authorities and the efficient support provided in organizing and facilitating the discussions.

This report contains the mission’s findings, incorporating consultations with the authorities.

Maldives: Technical Assistance Report-Modernizing the Goods and Services Tax
Author: International Monetary Fund. Fiscal Affairs Dept.