World Bank has suggested Maldives government to raise state revenue, specifically through domestic sources.
The global financial institution made the recommendation in its latest Maldives Public Expenditure Review (MPER).
As per World Bank, the Indian Ocean archipelago requires to raise revenues in order to finance its spending needs. In this regards, the bank suggests Maldives to raising taxes in tourism sector, as well as from local households and firms.
Several suggestions have been made by the financial institution towards achieving stronger state revenue, which include;
- Reduction of personal income tax threshold
- Introduction of a presumptive tax regime at a rate of two to three percent of turnover for businesses below the GST threshold
- Rationalizing Goods and Services Tax (GST) exemptions and zero-ratings
- Extending GST to digital services and offshore booking accounts
The bank estimates, said changes may yield an additional 2.7 percent of the country’s Gross Domestic Product (GDP) in revenues in the short-term. Another two to three percent of GDP bump is expected through a GST hike; both tourism and general components, for the medium term.
World Bank also recommends Maldives to increase state revenue through several measures. This includes enhancing transparency, communication and accountability of fund utilization.
The financial institution further suggests Maldives government to improve debt management. It said the recent centralization of issuance of domestic securities within Ministry of Finance will enhance towards this end.
Among other suggestions, the bank notes on containing the growth of sovereign debt and guarantees. To achieve this, Maldives must revise the draft of Public Debt law to guarantee policy to include risk-based fees.
Other elements to the draft include establishment of a limit on guarantee amount, and setting up a guarantee fund.
Mandating the inclusion of government guarantees in medium-term and fiscal strategies, are some other suggestions as well.
World Bank suggests increasing transparency of public fund utilization by publishing borrowing plans to improve cash management and domestic market development. It also suggests strengthening institutional arrangement for State-Owned Enterprises (SOEs) fiscal risk oversight.