Minister of Finance Ibrahim Ameer has stated that the inflation rate of the Maldives will remain low compared to other countries despite the tax hikes.
Speaking to PSM News, Minister Ameer responded to claims that the tax hikes will increase the price of goods and will be a burden on the public. The minister said increasing the Goods and Services Tax (GST) will increase the inflation rate, detailing that inflation will rise from 3% this year to 5.4% the next year. He highlighted that it is still a lower rate compared to other countries and cited examples such as the United States (US), which has a 9.9% inflation rate, and countries in the European Union (EU) which have inflation rates reaching 11%.
Additionally, Minister Ameer said the most important step involves increasing revenue to fund infrastructure development, increasing wages for teachers and health workers, and pay harmonisation for the Civil Service Commission (CSC). He noted that it is difficult to obtain foreign financial assistance, as countries have increased their interest rates.
The Parliament of the Maldives has passed the government-proposed amendment bill to increase the tax rates from January 2023. The government proposed to increase Tourism Goods and Services Tax (TGST) from 12% to 16% and increase the GST from 6% to 8%. The government expects to generate USD63 million from GST and USD136 million from TGST by next year. Therefore, the tax changes are expected to generate total revenue of USD195 million.
Ministry of Finance has stated that difficulties will increase in the future if steps are not taken to improve the financial situation of the state. Therefore, the ministry decided to take measures to increase revenue and reduce government expenditure, strengthen government-owned companies and reduce their dependence on the state budget. The government has also included cost reductions in its current projects.
The World Bank has stated that its analysis shows that the fiscal position of the government of the Maldives and balance of payments has deteriorated due to rising global commodity prices and that urgent tax hikes are a meaningful step to increase revenue.