Faced with rising costs of imports of food, fuel, and other subsidies, the Maldives government had decided not to reduce land rent for islands leased to resorts. Earlier, the government had proposed a bill to reduce land rent to promote investment in the tourism sector in the post-pandemic recovery period.

Known for its emerald waters, white sandy beaches and over a thousand islands, the Maldives is heavily reliant on luxury tourism, a sector that was the hardest hit during the pandemic in the wake of the global travel restriction. For a long time, industry players had been demanding some relaxation to ease the pressure.

In March, the government had proposed an amendment to the Tourism Act in order to reduce lease rent. However, on Wednesday this week, the Finance Ministry announced withdrawing the proposed legislative amendment to reduce the land rent on islands leased for tourism, citing increasing fiscal pressure in the wake of the Ukraine war. 

In the statement, the government said that the global economy had been facing multiple adverse events this year, which was having an impact on the Maldives’ fiscal path, and changing projections. Rising food and fuel prices are the most concerning development, reported Sun news.

Tourism accounts for 70 percent of the government’s total revenue. The government’s spending target on subsidies has already crossed the limit set by the budget 2022, making it extremely hard to reduce any taxes, which could result in potential revenue loss.

In 2020, when the pandemic disrupted the tourism industry, the Maldives’ economy contracted almost 30 percent.

The Maldives Monetary Authority (MMA) and Maldives Inland Revenue Authority (MIRA), two of the government important agencies, had also opposed the plan to reduce any taxes.

“It is not advisable to do something that would reduce our revenue, at a time when we are experiencing the Ukraine conflict and other such supply shocks. The country [Sri Lanka] has gone to the IMF over such an issue,” Ali Hashim, the governor of the MMA, was quoted as saying by Sun news.

Furthermore, the war in Ukraine also affected the tourism sector’s growth trajectory in the Maldives, as both Russia and Ukraine were together the top source market for the archipelago. The share of Russian tourists has also dropped significantly since March as the western sanctions on Moscow crippled its economy.
(SAM)