Taxing foreign tour operators: ‘IMF’s advise sought, impact on locals will be minimized’

Finance Ministry has stated that it consulted the International Monetary Fund (IMF) on the collection of Goods and Services Tax (GST) from foreign tour operators and international booking platforms, assuring that the tax will be implemented in a manner that minimizes the impact on Maldivians.

As part of efforts to implement the ‘Destination Principle’ in the Maldives, the government has submitted a bill to the People’s Majlis seeking to establish legal provisions governing services provided by offshore booking platforms, foreign tour operators, and travel agents. Introduced on Sunday, the bill outlines mechanisms for taxing foreign businesses that facilitate tourist arrivals to the Maldives.

While concerns have been raised that the proposed changes could negatively affect the tourism industry, a key pillar of the Maldivian economy, Deputy Minister of Finance and Maldives Inland Revenue Authority (MIRA)’s Chairperson Ahmed Saaid Mustafa provided further clarification during a program aired by the state media on Monday night.

Saaid said the Finance Ministry has been seeking technical assistance from the IMF on Maldivian tax legislation for several years, with recommendations previously obtained and implemented through changes made in 2019. He described aligning the country’s tax system with international best practices as a key objective of successive Maldivian governments.

"The current changes to this system have been analyzed in an IMF report, while also considering the local Maldivian context and the advice of the implementing agency, the Maldives Inland Revenue Authority," he said.

Explaining the reasoning behind the proposed amendment, Saaid said the government believes the state has the right to tax payments made to foreign entities for goods and services generated through assets developed using Maldivian labour.

As an example, Saaid noted that when both a foreign tour operator and a local tour operator arrange accommodation at a Maldivian resort for an overseas client, the local operator currently bears a greater financial burden.

"The government’s policy to establish an economic environment with a level playing field is not solely about increasing state revenue," he noted.

Saaid described the proposed taxation framework as economically sound and characterized opposition to the measure as "shortsighted." He stressed the importance of maintaining modern state revenue systems that can adapt to developments in the international tax environment.

"We are introducing the Destination Principle in accordance with the decisions of the President and the government, ensuring that the burden on the Maldivian people is minimized or non-existent," Saaid said.

According to the government’s bill, taxing foreign tour operators is projected to generate approximately MVR 1.61 billion in annual state revenue. The legislation proposes October 1 this year as the effective date, indicating that it could be passed before the conclusion of the current parliamentary session or during an extraordinary sitting.

The current administration has introduced several measures aimed at increasing revenue from the tourism sector, including raising tourism-related taxes and requiring the conversion of foreign currency earnings generated by the tourism industry.