Deputy Speaker: Fall in revenue due to lull in cigarette imports

Deputy Speaker Ahmed Nazim suggested on Monday that the fall in state revenue is due to a lull in the import of cigarettes after businesses stockpiled on the product ahead of the doubling of import duty on cigarettes.

The representative for the Dhiggaru constituency made the remark during a meeting of the Parliament’s Public Accounts Committee held on Monday afternoon to review a letter submitted by a former employee of the Auditor General’s Office claiming failure to receive their retirement allowance.

Nazim, a politician from the ruling People’s National Congress (PNC), said that while the government has formulated fiscal reforms, he has not seen any improvement to the economic situation or costs getting cut down.

He said that he also finds the sharp decline in state revenue alarming.

The latest weekly fiscal report released by the Finance Ministry shows a 18.8 percent fall in state revenue as of February 6, compared to the same period last year. The biggest decline is in import duties which fell from MVR 385 million to MVR 138 million – marking a 64 percent drop.

The sharp decline in import duties prompted questions as to whether the free trade agreement with China – which took effect at the start of this year - contributed to the decline. Economic Minister Mohamed Saeed rejected the link last week, but did not provide a reason for the decline.

At Monday’s committee meeting, Nazim said that while the government has not explained the reason for the decline, the reason is clear from the statistics.

He said that cigarettes are the biggest source of revenue from import duty, and that there has been a slowdown in the import of the product since the hike in import duty on cigarettes took effect on November 1 last year.

“It is clear to us that the revenue fell because businesses aren’t importing cigarettes because they haven’t run out of the huge stocks they imported and paid the import duty on while the duty remained low. But this hasn’t been explained to the people,” he said.

Nazim said that it would be a “huge problem” if revenue continues to decline another business quarter, and that there is no other choice but to cut costs.

He said that the committee needs to meet Asma Shafeeu, the reform commissioner appointed by the Finance Ministry, and get the timeline on the rollout of the fiscal reforms.

 “The reform commissioner’s boss if the finance minister. Therefore, I always say that there needs to be a deadline for the rollout of each and every reform and that the reforms need to be implemented on time,” he said.

Asma’s appointment as reform commissioner to expedite the rollout of the reforms was announced by the Finance Ministry on December 17.

On November 1, the Maldives increased the specific rate of import duty on cigarettes and beedi from MVR 3 to MVR 8, and the ad valorem tax on the products by 50 percent.

Tobacco importers and distributors raised the prices of cigarettes following this change, with the price of common cigarette brands rising between MVR 240 to MVR 290 per pack, and MVR 2,240 per carton.

While businesses initially reported a drop in the sale of cigarettes, there has been an increase in the sale of rolling tobacco as well as the smuggling of cigarettes.

On October 25 – just before the duty hike had been set to take effect – authorities raided The Hawks’ boatyard in K. Thilafushi and seized a shipment of 200 master cartons of Manchester brand cigarettes believed to have been smuggled into the country on one of the company’s ships.

And earlier this month, the police announced they had opened an investigation after 955 cases of tobacco products including cigarettes and pipe tobacco were illegally removed from two bonded warehouses, denying the state over MVR 67.9 million in duties.

In addition to raising the duty of cigarettes, the Maldives has also imposed a ban on vapes and e-cigarettes.

Information released by the police show that the state imposed MVR 130,500 in fines on 23 people for 28 violations of the ban by the end of January.