2022 was a year full of talk surrounding the debt and the bleak future of the Maldives as the country reached over MVR 105 billion in debt, equating to over MVR 191,000 per each citizen. When the news surrounding the country’s debt situation broke out, so did the panic around how to curb the situation in order to avoid being in a similar crisis as the neighbouring country Sri Lanka which suffered from an economic crash early in 2022.
Soon enough, the Maldives Government was looking into several ways to reduce the debt of the country and generate some revenue in order to ensure the country’s economy does not crash within the next year. While several measures such as reducing Government spending were discussed, one of the biggest steps that the Government implemented for the start of 2022 was the increase in taxes.
By 2nd November 2022, an amendment was made to the Goods and Services Tax Act, which stated that from 1st January 2023, the Goods and Services Tax (GST) as well as the Tourism Goods and Services Tax (TGST) will be increased effective immediately. Under this new amendment, the GST was to increase from 6 to 8 percent and the TGST was to increase from 12 to 16 percent. While the discussions around the increase of taxes started in late 2022, even before a formal decision was made, panic started out as citizens were not prepared for an increase in their day-to-day life as the cost of living in the Maldives was already unaffordable for many.
The impact on the tourism industry
In addition to the panic from people who could not imagine how expensive life was about to get in the coming year, tourism industry professionals also started panicking about the negative consequences of a sudden increase in the TGST during a time when the Maldivian tourism industry was finally taking off following the negative effects of the COVID-19 lockdown. In a statement published on 24th November 2022, the Maldives Association of Travel Agents and Tour Operators (MATATO) called on the Government to take immediate action in order to safeguard the economy of the country as well as the tourism industry of the Maldives.
“Given that such abrupt changes cannot be implemented with our many foreign partners, including travel agencies and tour operators in Europe who are barred from changing the prices of holiday packages once sold as per EU laws. MATATO has also learned that multiple diplomatic channels have been engaged by many foreign tour operators and are making efforts to lobby the Maldivian Government to cease and desist their present course of action.” - MATATO.
The end of 2022 marked a very successful year for the tourism industry as the country reached their goal of 1.6 million arrivals, however, with the increased TGST making travel to the Maldives more expensive than ever, whether the increase in TGST will have an impact on the industry is yet to be seen this year. Due to the successful arrival rates in 2022, the Government has increased the goal for 2023, expecting over 1.8 million tourist arrivals by the end of the year.
Impact on households
While it is concerning exactly how much the increase in taxes would impact the biggest industry in the Maldives that generates most of the country’s revenue, another factor to consider is exactly what kind of impact this increase will have on local households.
As the Maldives is a country heavily dependent on the tourism industry, with most development heavily centred around the capital city Male’, day-to-day life in the Maldives is on the more expensive side for the average household.
With rent pieces on an increase each passing year, the health sector getting more pricy by the end of 2022 and the cost of goods always being a burden as the country heavily relies on imports, an additional increase in taxes comes as heavy news for a majority of the households in the Maldives – especially on most vulnerable low-income households.
While a two percent increase in taxes might sound small in number, it is going to have a major impact on households, especially those who were already struggling to make ends meet before the increase in taxes. Even though this tax hike will assist the Government in its cause to increase the domestic revenues in 2023, many are starting to wonder whether the increased tax measures alone would be sufficient to go about stabilizing the debt situation in the country.
While it is the politicians who racked up billions in debt with increased loans and infrastructure development projects, it has now become clear that it is the citizens who are going to have to pay the price for the poor financial decisions, making life in the Maldives more expensive than ever.
While living in the Maldives keeps getting more unaffordable each passing year, one thing that we have yet to see is an increase in household incomes to combat these increasing prices. And for those who were barely getting by in 2022, the new year is only starting to look bleaker as the cost of goods has doubled in the eyes of many, making the simplest things in life a luxury that many cannot afford to pay for.