By The Maldives government is introducing new amendments to its tax policies, aiming to increase tourism revenues. On Monday, an amendment will be presented in parliament proposing a hike in the Tourism Goods and Services Tax (TGST) to 17% and a doubling of the green tax for tourists. These changes are expected to be implemented in phases throughout 2025.
Details of the Proposed Tax Increases
The new proposal outlines two significant changes for the tourism sector:
- TGST Hike:
- The TGST rate will rise from 16% to 17%, effective from June 2025.
- This follows a recent hike in January 2023, when the TGST increased from 8% to 16%.
- Green Tax Doubling:
- For guesthouses with less than 50 rooms, the tax will increase from $3 to $6 per night per person.
- For resorts, city hotels, and larger establishments with more than 50 rooms, the rate will increase from $6 to $12 per night per person.
- These green tax changes will take effect from January 2025.
Additionally, the government plans to exempt children under two years of age from the green tax, which they were previously subject to.
Aiming to Bolster Foreign Reserves and Earnings
The rationale behind these tax increases is to strengthen the Maldives’ foreign exchange reserves. The tourism industry, which forms the backbone of the country’s economy, has faced increasing financial pressure, prompting these measures to secure additional revenue.
The Maldives relies heavily on tourism, with resorts and guesthouses catering to luxury travelers and mid-range tourists alike. Increasing taxes on tourists is seen as a way to boost foreign exchange earnings while aligning the Maldives’ tax policies with global tourism trends.
Industry Impact and Potential Challenges
The latest tax hikes come shortly after the government raised the TGST to 16% in early 2023, leading to concerns among hotel operators about the cumulative effect on tourism prices. While larger resorts may be able to absorb the higher tax burden, smaller guesthouses and mid-range hotels could face difficulties in maintaining competitiveness.
However, the exemption for children under two years of age may be seen as a small relief for families traveling to the Maldives. Additionally, tourists may still opt for the Maldives’ pristine beaches and world-class resorts, although operators might need to adjust prices to accommodate the higher taxes.