DTIS, Volume I - Enhanced Integrated Framework (EIF)

Overall, the importance of foreign exchange earnings from international tourism is
substantial for the balance of payments of the Maldives. To a large extent, the foreign
exchange contribution from tourism covers the trade deficit originating from imbalances
in the merchandise trade, which was just under US$ 260 million in 2003.
Tourism’s direct contribution to GDP is significant. This was Rf 2.483 billion ($ 195
million) in 2003 out of the total GDP of Rf 7,586 million (US$ 595 million). This
corresponded to 32.7 per cent of total GDP. This proportion has remained fairly constant
during the last 20 years. However, it should be noted that the contribution of other
economic sectors as construction, transport and communications, financial services and
government administration (e.g. immigration, customs, airport services, etc) to the GDP
is a result of tourism development. Indeed, it can be said that the economy is to a large
extent driven by tourism development in view of both the direct and indirect contribution
of tourism to the country’s GDP.
VI. Trade Policies
Trade policies have had an ambiguous role in the Maldives as a tool for economic
development and poverty reduction. However, with increasing liberalization of the
economy since the 1980s and challenges of participating in the global economy, the role
of international trade has taken on new importance. Trade policies now need to be fully
integrated into the development planning process with urgent capacity building needs for
policy analysis, implementation and monitoring.
A. THE TRADE REGIME - IMPORT
Any person may import goods commercially for business purposes provided they hold a
general import license issued by the Ministry of Economic Development and Trade.
Tariffs are the Maldives' main trade policy instrument and are a major source of revenue,
accounting for about two thirds of tax receipts. Customs duties were introduced in the
Maldives about twenty-five years ago. The average (un-weighted) MFN tariff is 21.2 per
cent. Almost all MFN tariff lines (95 per cent) are in the range 5 to 25 per cent (the most
common rate). As can be seen from Table 3.10, there are ten ad valorem tariff lines
(including zero), whilst cigarettes are charged per stick. The Harmonized System (HS) of
tariff classification is used. At the ten digit level there are 9,377 tariff lines, of which just
under half are at the 25 per cent rate. Eighty per cent of the lines are between 15 and 25
per cent. The 100 per cent rate applies to motor vehicles, whilst the 200 per cent rate
applies to plastic bags. Both these rates are effectively an environment tax that could be
better served by an excise duty.
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