DTIS, Volume I - Enhanced Integrated Framework (EIF)

Capital markets are still in their infancy in the Maldives. The Capital Market Division
(CMD) was created in 1999 within the MMA followed in 2002 by the establishment of
the Maldives Stock Exchange (Securities Trading Floor). operated by CMD. Only the
shares of three partially privatized State Owned Enterprises (SOEs) are listed and traded:
the State Trading Organization Plc (STO); Bank of Maldives Plc (BML) and Maldives
Transport and Contracting Company Ltd (MTCC). During the DTIS exercise, a
Securities Bill was under consideration in the parliament.
V. Fiscal Regime
The current tax base in the Maldives is narrow, severely limits the government's revenueraising
capacity and accentuates its fiscal deficits. The Maldives has no direct taxes and
no general consumption tax. There are three main types of indirect taxes - import tariffs,
an export tax on fish and a tourist bed tax. In 2004 these taxes accounted for 92 per cent
of total government tax revenue (94 per cent in 1995). It has been noted that the tourist
bed tax is highly regressive in nature as it applies equally to all categories of resorts –
from the comfortable to the luxurious - and is not related to the service provided or the
investment made.
Aside from taxes, the government relies on land-lease payments for tourist resorts as
another major source of revenue. This has become the second largest single revenue
earner after tariffs (see Table 2.4).
International tourism in the Maldives is the single most important revenue-generating
sector. Directly and indirectly it generated an estimated total of Rf 1,333.8 million (US$
104.2 million) in 2004, corresponding to more than 40 per cent of total government
revenue, estimated at Rf. 3.3 billion (US$ 256 million), up from 28 per cent in 1995.
On the expenditure side, expansionary fiscal policies have raised budget deficits from 1.4
per cent of GDP in 1997 to an estimated 5.3 per cent in 2001. Since then the deficit
declined, reaching 1.8 per cent in 2004. With the effect of the tsunami the deficit is
expected to increase to 6 per cent for 2005, with further increases expected in 2006 and
2007. The budget situation is expected to normalize in 2008.
Expenditure has surged above targeted growth levels, especially on government
administration and social services, but also a reflection of the commitment of the
government to improve human welfare. Accordingly, expenditure growth has outstripped
revenue expansion. To some degree, revenue shortfalls have been offset by external aid.
The government maintains an ambitious public investment programme. This programme
recognises the fact that for economic development to take place and for the private
business sector to invest in administrative regions other than Male’ and Hulhumale’ and
in sectors other than tourism and fisheries, it is essential that public investment addresses
the constraints posed in the atolls and the lack of fully functional infrastructure. Table 2.5
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