Business profit tax declines by MVR 760M as businesses experience low

Statistics disclosed by Finance Ministry show that business tax profit collected by the state has declined by MVR 760.1 million.

Businesses experience a low this Ramadan as well, significantly impacting their revenue.

Finance Ministry has released data on the state's revenue and expenditure for this year, as of May 12. The figures show that MVR 2.1 billion was collected in business profit tax during this period — a decrease of MVR 760.1 million compared to the same time last year, marking a 26 percent drop.

However, Goods and Service Tax (GST) collected during this period had increased compared to the same period last year, at MVR 2.26 billion, marking an increase of MVR 107.2 million.

Tourism Goods and Service Tax (GST) stood at MVR 5.6 billion during this period, marking an increase of MVR 572.4 million.

While there is an increase in GST, the prices of food products have risen by 6.16 percent over the past year. At the onset of this year, inflation stood at 4.80 percent. The increase in GST is attributed to an increase in the prices of products.

Overall, state revenue saw an increase during this period, reaching MVR 16.9 billion—up by MVR 960 million compared to the same period last year.

However, businesses have expressed concern over a sharp decline in revenue. For instance, stalls in Male’ market that previously earned MVR 30,000 daily during Ramadan, earned around MVR 4,000 per day this Ramadan.

One of the key factors contributing to the decline in business revenue—and the resulting drop in business profit tax—is the slowdown in economic activity. The lack of ongoing projects has limited income opportunities for businesses

Finance Ministry statistics show a significant reduction in project-related spending, with only MVR 1.5 billion spent so far this year—down by MVR 3.8 billion compared to MVR 5.3 billion during the same period last year.

Another growing concern is the large amount of money the government owes to private businesses. Despite President Dr. Mohamed Muizzu's assurance that outstanding payments for projects would be settled before Ramadan, these dues remain unpaid to date.

The current administration awarded majority of government projects to state-owned companies.

President Muizzu has stated that most projects were being awarded state-owned companies in order to reduce expenditure. In this regard, he said his administration has decided to reduce expenditure by reforming the way projects are implemented.

The government has spent a total of MVR 15.6 billion so far this year, which is MVR 4.6 billion less than during the same period last year. However, this reduction is primarily due to the lack of project implementation. Recurrent expenses saw only a slight decrease of MVR 800 million, with the majority of the savings resulting from stalled projects.

While these concerns persists, top global credit rating agency, Fitch, has maintained Maldives’ credit rating at ‘CC’, citing risk of default persists. Fitch downgraded Maldives’ credit rating from ‘CCC+’ to ‘CC’ last year in August. The ranking has now been affirmed following a review. Another prominent globabl credit rating agency, Moody’s has also affirmed Maldives’ credit rating at Caa2, which had been downgraded in September of last year.

Maldives has to repay USD 688 million for foreign loans this year alone, and MVR 1.1 billion over the next two years.

Despite its high debt burdens, the Maldivian government has affirmed it will not default on any loans. The current administration cited one of its biggest achievements as “saving Maldives from bankruptcy”.

It has been several months since International Monetary Fund (IMF) and World Bank have been urging the Maldivian government to expedite fiscal reforms in light of Maldives’ worsening economic state. Despite the government announcing various fiscal reforms, none of them had been implemented due to various reasons.