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Technical Assistance Consultant’s Report Project Number: 39658 June 2013 Maldives: Institutional Strengthening for Economic Management (Financed by Technical Assistance Special Fund) Prepared by: Kevin Holmes Wellington, New Zealand For: Ministry of Finance and Treasury Maldives Inland Revenue Authority This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.
TA 7424-MLD: Institutional Strengthening
for Economic Management
Maldives Inland Revenue Authority (MIRA)
Final Report
Contract No. S71644
Dr Kevin Holmes
June 2013TA 7424-MLD: Institutional Strengthening
for Economic Management
Maldives Inland Revenue Authority (MIRA)
Introduction
1. This is the final report is submitted in accordance with the Output/Reporting
requirements specified in the Terms of Reference for Contract S71644 (Income Tax
Advisor). It covers the period 23 March 2011 to 2 May 2013 (“the contract period”).
Earlier reports submitted were:
(a) Inception report – April 2011
(b) Interim report – October 2011
(c) Interim report – June 2012
(d) Interim report – November 2012.
2. The purpose of the role of the Income Tax Advisor was to support the Maldives Inland
Revenue Authority (MIRA) in the administration of the tax laws of the Maldives, viz. the
Tax Administration Act (3/2010), the Tourism Goods and Services (T-GST) Act
(19/2010) (now the Goods and Services Tax (GST) Act (10/2011)), and the Business
Profit Tax (BPT) Act (5/2011).
3. The scope of the assignment broadly involved working closely with the Commissioner
General of Taxation and his staff, and advising them on structural, organisational and
technical issues. More specifically, it covered:
(a) Implementation of the T-GST (now GST) and BPT;
(b) Support to the Revenue Service Department;
(c) Development of a Master Plan for the MIRA;
(d) Coordinating revenue management activities and training;
(e) Reviewing and helping in the development of the next stage of tax reform.
Contextual background and Economic Recovery Programme
4. As a consequence of the increasing budget deficit throughout the contract period, the
Maldives Government has come under increasing pressure to raise revenue. Despite
increased revenue collected through the taxes administered by MIRA, the Government’s
fiscal position continued to deteriorate. To a large extent this has been due to escalating
expenditure. However, this report addresses tax revenue aspects only.
5. The principal contributors to the the pressure on tax revenue were:
(a) Loss of import duty revenue as a result of amendments to the Export-Import Act
1979, which were passed in November 2011 to remove import duties on inter alia
construction material, foodstuffs, agricultural equipment, medical devices, passenger
vessels and goods used for tourism services, and to reduce the tariff on a variety of
other goods. The import duty on tobacco was increased from 50% to 150%. The
Maldives Monetary Authority has estimated that the net revenue loss from these
measures is approximately MVR 500 million (USD 32 million).
(b) Depressed airport concession fees as a result of a civil court ruling, which denied the
Government payment of an airport development charge, and the inability of the
Government to get the necessary legislation passed by Parliament to increase the
airport service charge to the Government’s desired level of USD 35 per passenger.
(c) A change in Government policy since the transfer of Presidential power in February
2012, which resulted in a substantial reduction in tourism resort lease extension
payments.
6. As a result of the increased budget deficit, the Government announced that it is
considering a policy reversal on import duties and attempted to increase the tourism GST
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rate from the current rate of 8% to 15%, with effect from 1 June 2013. The latter
proposition failed to achieve adequate Parliamentary support and the GST Amendment
Bill, which was to empower the new rate, was withdrawn in June 2013. It is not clear
whether the Government will attempt to introduce any bills to increase tax revenue before
the Presidential election scheduled for 7 September 2013.
7. During the contract period, the Government’s tax reform timetable to raise additional tax
revenue was ambitious, and somewhat erratic. Within a period of two years, a 3.5% T-
GST was introduced and repealed, BPT was introduced, a general GST was introduced, a
corporate profit tax (CPT) law was passed but rejected by the President, a personal
income tax (PIT) Bill was introduced to Parliament, and is currently before a
Parliamentary Select Committee (now in the amended form of a comprehensive Income
Tax Bill), and BPT is proposed to be repealed. I am not aware of any other country that
has introduced such wide-ranging reforms within such a short period and, in particular,
introduced a GST – which includes fairly extensive exemption and zero-rating provisions
– in a largely cash based economy at one month’s notice.
8. These reforms, together with new responsibilities assigned to MIRA to collect a range of
non-tax amounts payable to the Government (e.g. land lease rental payments, fishing
royalties, fees, etc.), has placed considerable pressure on the limited staff resources
available to MIRA. It is noted, however, that the full staff complement increased from
approximately 70 people at the commencement of the contract period to over 150 at the
end of the period. The staff are a relatively young and enthusiastic group who, in my
observation, are committed to developing and implementing the fiscal reforms under their
jurisdiction, and work long hours, including weekends and public holidays, to achieve
that objective. I suspect that only with this continued dedication, together with the
support of external tax advisors, that successful implementation of the Government’s
bold tax reform programme will be achieved. The danger, of course, is that if the benefits
of the reforms are not evident, staff will become demoralised, and will seek alternative
employment.
Tax revenue performance
9. Revenue collection statistics reflect the revenue generating success of the BPT,
withholding tax (WHT) (technically a part of the BPT, but separately itemised for
statistical purposes), and GST, particularly in the tourism sector.
10. During the period under review, total tax receipts increased by 262.7% from MVR
1,202,282,370 to MVR 3,158,605,197 (see Tables 1 and 2 below).
11. The introduction of BPT and GST has changed the composition of tax revenue
significantly. To illustrate, if we compare the composition of tax revenue at the
beginning of the contract period (for the 4-month period from 1 January 2011–30 April
2011) with the end of the contract period (for the 4-month period from 1 January 2013–
30 April 2013),1 we can see that BPT and GST now account for approximately 2/3 of the
Government’s tax revenue.
12. In the first period, 60% of total tax revenue was derived from tourism lease rental
payments, lease period extension payments and tourism (bed) tax. T-GST, which was
introduced on 1 January 2011, accounted for 1/5 of total tax revenue. Overall, the tourism
1
This 4-month period is adopted because some payments are made on a quarterly basis such that a simple
monthly comparison is distortionary.
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sector (including the airport service charge, which is derived primarily from tourists) was
contributing approximately 90% of total tax revenue.
Table 1
Composition of Total Tax Revenue
1 January 2011 - 30 April 2011
BPT 0
Airport service charge 103,696,725
Bank profit tax 3,558,167
General GST 0
Lease period extension 189,465,000
Other 140,141,906
T-GST 273,470,806
Tourism (bed) tax 247,680,500
Tourism lease rental 347,965,991
Total 1,202,282,370
Figure 1
Composition of Total
Tax Revenue Airport service Bank profit tax
1 January 2011 - 30 April 2011 BPT
charge 0%
8% General GST
0%
0%
Lease period
Tourism lease extension
rental 14%
27%
Other
Tourism (bed) 11%
tax
19%
T-GST
21%
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13. Two years later, the composition of tax revenue had changed, although the tourism
sector still generates approximately 2/3 of total tax revenue.2
Table 2
Composition of Total Tax Revenue
1 January 2013 - 30 April 2013
Airport service charge 133,508,535
Bank profit tax 0
BPT 633,366,252
WHT 103,772,809
GST General 439,445,371
T-GST 989,399,946
Lease period extension 0
Other 246,197,688
Tourism (bed) tax 314,106,348
Tourism lease rental 298,808,248
Total 3,158,605,197
Figure 2
Composition of Total
Tax Revenue Tourism lease
Airport service
1 January 2013 - 30 April 2013 charge
rental
4%
10%
Bank profit tax
0%
Tourism (bed) tax
10%
BPT
20%
Other
8% WHT
3%
Lease period GST General
extension T-GST 14%
0% 31%
2
If we assume that approximately 2/3 of BPT revenue is derived from the tourism sector.
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14. Tourism (bed) tax, tourism lease rental payments, the airport service charge and lease
period extension payments now account for ¼ of total tax revenue and tourism GST
accounts for nearly 1/3. More significantly, general GST and BPT now make up well over
1
/3 of total tax revenue (although a significant portion of the BPT revenue comes from the
tourism sector). Therefore, based on the above assumptions, dependence on the tourism
sector has fallen from approximately 90% to 2/3 of total tax revenue.
15. Although monthly revenue collections fluctuate, because due dates for significant taxes,
such as BPT, fall only in particular pre-determined months, the overall trend in average
monthly tax collections is increasing at an average rate of 8% per month over the review
period (see Annex 1, Table 1).
Figure 3
Total Tax Revenue
1,200,000,000
1,000,000,000
800,000,000
MVR
600,000,000
400,000,000
200,000,000
-
2011 - 2013
Total tax Linear (Total tax)
16. However, contributions to this overall rate varied between individual taxes. As expected,
given the changed composition of total tax revenue during the review period, GST and
BPT were significant contributors to the rate of growth in total tax revenue.
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GST
17. Total GST receipts show an average monthly rate of increase of 9% (see Annex 1, Table
2).
Figure 4
Total GST Revenue
600,000,000
MVR
400,000,000
200,000,000
-
2011 - 2013
Total Linear (Total)
18. Both components of total GST receipts (tourism GST and general GST) have been
increasing at more or less the same average rate: 8% and 9% per month, respectively
(see Annex 1, Tables 3 and 4). The seasonal fluctuations in tourism GST receipts can
be readily discerned from the peaks and troughs in Figure 5.
Figure 5
T-GST Revenue
350000000
300000000
250000000
MVR
200000000
150000000
100000000
50000000
0
2011 - 2013
T-GST Linear (T-GST)
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Figure 6
General GST Revenue
140,000,000
120,000,000
100,000,000
80,000,000
MVR
60,000,000
40,000,000
20,000,000
- July
August
October
November
November
January
April
May
September
April
December
June
December
January
March
February
March
February
2011 - 2013
Series1
GGST Linear (Series1)
(GGST)
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BPT
19. BPT collections are of more concern. Total BPT includes interim and final BPT
payments arising from annual assessments of BPT, and monthly WHT payments. To
assess trends each element is addressed separately.
20. Monthly WHT collections vary widely. They have shown an average monthly growth
rate of 11% since October 2011, but that rate has fallen to 2% in the last 12 months (see
Annex 1, Table 5). This is an area of concern and warrants further audit investigation.
Figure 7
WHT Revenue
40,000,000
35,000,000
30,000,000
25,000,000
MVR
20,000,000
15,000,000
10,000,000
5,000,000
-
July
July
August
October
August
October
September
November
April
May
September
November
April
December
December
June
January
March
January
March
February
February
2011 - 2013
WHT Linear (WHT)
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21. BPT excluding WHT is largely dependent on interim tax payment dates (31 July and 31
January), so monthly comparisons are not useful (see Annex 1, Table 6).
Figure 8
Revenue from BPT (excluding WHT)
700,000,000
600,000,000
500,000,000
MVR
400,000,000
300,000,000
200,000,000
100,000,000
-
July
August
July
August
October
October
November
November
September
January
April
May
September
January
April
December
June
December
March
March
February
February
2011 - 2013
BPT (excluding WHT) Linear (BPT (excluding WHT))
22. Although there is an overall upward trend, the lower peak at January 2013 (cf.
July/August 2012) is concerning, and warrants further investigation. This is particularly
pertinent, since it is quite possible that the resort sector is impacting upon the lower
interim payments in January 2013. This is because a material proportion of 2011 BPT
returns of resorts showed tax losses. If a systemic problem is revealed, re-consideration
should be given to the establishment of a specialist large taxpayer unit as an extension of
the current reorganisation of the MIRA’s Audit and Investigation Department.
23. Total BPT is aggregated in Figure 9, which also illustrates the relative importance of
interim tax payments vis-à-vis WHT payments (cf. the relative heights of the troughs in
Figures 8 and 9 with the peaks).
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Figure 9
Monthly Total BPT (incl. WHT)
700,000,000
600,000,000
500,000,000
MVR
400,000,000
300,000,000
200,000,000
100,000,000
-
July
August
October
July
August
October
November
November
May
September
April
September
April
June
December
January
December
January
February
March
February
March
2011 - 2013
Total Linear (Total)
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Tourism (bed) tax
24. Tourism tax revenue (imposed at the rate of USD 8 per night for each tourist staying in a
tourist establishment) has remained fairly steady over the review period, producing an
increase of only 2% in the average monthly collection (see Annex 1, Table 7). Figure 10
demonstrates the seasonal nature of the collection of this tax. This tax is to be repealed
from 1 January 2014.
Figure 10
Tourism (Bed) Tax
90,000,000
80,000,000
70,000,000
60,000,000
50,000,000
MVR
40,000,000
30,000,000 Bed tax
20,000,000
Linear (Bed tax)
10,000,000
-
2011 - 2013
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Tourism land lease rent
25. Tourism land lease rental collections fluctuate each month (see Annex 1, Table 8). Most
payments are made at the end of each quarter. Therefore, quarterly figures smooth the
effect of the monthly fluctuations. The average increase in quarterly payments of tourism
land lease rent is only 2% per quarter.
Figure 11
Tourism Land Lease Rental
300,000,000
250,000,000
200,000,000
MVR
150,000,000
100,000,000
50,000,000
-
July
July
October
October
August
August
September
November
April
September
November
April
May
June
June
January
May
March
January
April
March
December
February
December
February
2011 - 2013
Tourism Land Lease Rental Linear (Tourism Land Lease Rental)
26. To augment revenue from this source, the Government should consider increasing
tourism land lease rentals applicable to future leases of islands and, where possible, under
revisions of existing leases.
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Lease period extension fee
27. It is evident that there has been a considerable loss of revenue as a result of the
termination of collection of lease period extension fees after the change of government in
February 2012 (see Annex 1, Table 9).
Figure 12
Lease Period Extension Fee
160,000,000
140,000,000
120,000,000
100,000,000
MVR
80,000,000
60,000,000
40,000,000
20,000,000
-
July
August
July
August
October
October
November
April
November
April
May
September
May
September
April
June
December
January
June
December
January
March
March
February
February
2011 - 2013
Lease Period Extension Fee
28. Readdressing this policy could increase government revenue by more and half a billion
Rufiyaa per year, based on the above figures.
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Airport service charge
29. The airport service charge has been subject to political and legal wrangling, which
accounts for most of the fluctuations in the amount collected each month during the
period under review (see Annex 1, Table 10).
Figure 13
Airport Service Charge
120,000,000
100,000,000
80,000,000
MVR
60,000,000
40,000,000
20,000,000
-
July
July
October
October
August
August
September
November
September
November
April
May
June
January
April
May
June
January
April
December
December
March
March
February
February
2011 - 2013
Airport Service Charge Linear (Airport Service Charge)
30. After the failed attempt in May 2013 to increase the charge by 62%, the Government is
currently seeking Parliament’s approval to increase the charge by 35% (applicable to
foreigners, who are the main contributors of the charge).
Focus of activities
31. At the outset of the assignment, it was expected that the BPT regime would take effect
from 1 January 2012. However, relying on an ambiguity in the legislation (about which a
decision of the High Court is still pending), the Government decided to implement the
law from 18 July 2011. That decision necessitated a reordering of priorities, resulting in
(i) compacting field work days in Male’ as early as possible in the time allowed to
complete the contract, and (ii) a concentration on BPT related activities during the first
two missions because of the urgency to compile, pass and release the BPT Regulation
before the BPT regime took effect. In addition, the introduction of T-GST on 1 January
2011 required an early commitment to addressing interpretation and practice issues in the
application of the T-GST law.
32. Then, in July 2011 there was a change in the Government’s tax reform implementation
priorities, when it decided that GST would be introduced from 1 October 2011, and CPT
and PIT would be implemented from 1 January 2012. In terms of these new priorities, the
T-GST Act and Regulation were repealed with effect from 2 October 2011, and the BPT
Act and Regulation were to be repealed from 1 January 2012. This change in the order of
the Government’s priorities necessitated a change in the tasks undertaken. This was
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particularly the case with GST, where the terms of reference of the contract broadly
anticipated preparatory evaluation work for the future implementation of GST, which
would be the subject of a separate contract.
33. Overall, the activities resulting from these policy shifts required that more of my time be
devoted to (i) consideration of the numerous technical, legal interpretation and practical
implementation issues brought about by the new legislation, and (ii) MIRA staff drawing
extensively on my expertise and experience with these types of taxes.
34. The main features of the work carried out with respect to the relevant tax laws and their
administration are outlined below. A detailed list of tasks undertaken during the contract
period is presented in Annex 2. The output reports arising from those tasks are listed in
Annex 3.
T-GST
35. At the outset of this contract, the only tax in operation was T-GST. My initial focus was
on assistance in the review and desk audit of the first two months’ T-GST returns,
providing advice on technical issues arising therefrom, and increasing taxpayer awareness
of the correct application of the T-GST law, on-the-job training of staff in pre-visit
analysis of T-GST registered taxpayers’ January 2011 and February 2011 T-GST returns,
participating with MIRA staff in visits to taxpayers to check their compliance with the T-
GST legislation, and review of the issues arising therefrom. The objective was to address
interpretation and practice issues in the early stage of the T-GST regime in order to avoid
repetition of errors in subsequent monthly T-GST returns. The visits to taxpayers (and the
preliminary reviews) provided the opportunity to:
(a) determine the extent of compliance and the degree to which taxpayers correctly
understood the operation of the T-GST system
(b) sample test the accuracy of taxpayers’ accounting systems upon which the T-GST
(and subsequently BPT) returns rely
(c) answer taxpayer queries
(d) build a rapport with taxpayers
(e) ascertain the level of taxpayer awareness about the forthcoming BPT
(f) give MIRA staff an opportunity to interview taxpayers and review their records with
the Income Tax Advisor at hand for guidance
(g) pinpoint areas of policy, statutory interpretation and practice that required attention
and, where necessary, correction.
36. The T-GST collection procedures operated efficiently. They were subsequently rolled
over into the administration of the general GST.
GST
37. In June 2011, the Attorney General’s office issued a draft GST Bill, which required
significant amendments as a result of my review. Some of the proposed amendments
were not accepted and parts of the Bill that were innocuous were changed when it was
before Parliament, which resulted in some implementation difficulties. The Bill was
passed by Parliament and the Act was ratified on 2 September 2011 and came into effect
on 2 October 2011. Therefore, there was a lead time of only one month to educate MIRA
staff, businesses and the public on the GST regime. Unsurprisingly, there was widespread
misunderstanding about the imposition of GST, inconsistent application of it, and
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numerous technical issues arising as particular businesses attempted to apply the law and
regulations to their specific circumstances.
38. Much of my time was taken up with dealing with the above issues. I assisted MIRA to
write and issue the GST Regulation and rulings, to give the law practical effect. I
contributed to a Bill to amend the GST Act by rectifying some deficiencies in the current
legislation. However, the Bill submitted was altered at the Parliamentary level and
subsequently withdrawn by the Government in June 2013, for lack of political support.
Since GST-related issues are on-going, much of the time throughout the contract period
was devoted to GST matters.
BPT
39. Initially, drafting the BPT Regulation in anticipation of commencement of the BPT Act
on 18 July 2011 dominated my activities due to the urgency to finalise and release the
Regulation before the BPT regime took effect. However, in May 2011 compilation and
implementation of the BPT regulations were held in abeyance when the Government
advised that implementation of the BPT Act was under review, pending a proposal to
replace it with separate CPT and PIT Acts. However, in June 2011, the Government
decided to proceed with the BPT regime. That late decision resulted in a further
Government decision to abandon the collection of the first interim payment of BPT,
which was due on 31 July 2011 (with the obvious consequential adverse effect on the
Government’s cash flow). Priority was then given to drafting the BPT Regulation, which
was required to come into effect on 18 January 2012 (being 6 months after the
commencement of the Act on 18 July 2011).
40. There are numerous deficiencies in the BPT Act, which offer considerable scope for tax
avoidance, and ideally require rectification by legislative amendment. These deficiencies
complicated the drafting of the BPT Regulation. Considerable time and effort was
expended on attempting to mitigate the revenue risk of the statutory shortcomings by
regulation. However, I anticipate that, if BPT subsists, ultimately the primary legislation
will require amending.
41. With respect to WHT, after fervent lobbying by the tourism sector in particular the
former President undertook to abolish WHT. WHT was set at a rate of 0% in the PIT Bill
and the CPT Bill, the latter having been passed by Parliament was returned to Parliament
unratified by the current President for reconsideration. WHT has been a successful
revenue generator for the Government. For reasons that I set out extensively in papers to
the Government, I consider that the abolition of WHT is irrational, particularly in the
context of the Government’s desperate need for tax revenue and the obvious
opportunities that it would offer to avoid BPT.
42. Numerous extremely technical BPT and WHT (and GST) issues were presented by
primarily multinational enterprises operating in the resort sector, and their professional
advisers, which have been overwhelming for some MIRA staff. I have therefore needed
to devote long periods of time in assisting MIRA staff to address these complicated
international tax issues (e.g. transfer pricing, international corporate structuring and
permanent establishment issues) and to support them in meetings with the taxpayers and
advisers concerned. Furthermore, very detailed submissions on practical problems with
the implementation of the BPT Act (and GST Act) were received from the major
international accounting firms, which have required my involvement in meetings with
representatives of those firms and in the compilation of responses to their submissions.
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Again, these often involved complex international tax issues, which were not only
required to be dealt with in themselves, but also needed to be explained and elucidated by
me to (senior) MIRA staff, who were required ultimately to provide the MIRA
decision/position on the issue in question.
CPT, PIT and Income Tax
43. From the perspective of enhancing the quality of revenue gathering tax legislation, there
has been a discernible absence of progress at Parliamentary level. The intention of the
Government prior to February 2012 was that the BPT Act be replaced by the CPT Act
and PIT Act.
44. The opportunity to rectify the current deficiencies in the BPT Act by legislative
amendment presented itself with the introduction of the CPT and PIT Bills. However,
neither of these Bills is sufficiently comprehensive to do so. If the Bills were passed in
their present form, a significant undermining of tax revenue collection can be anticipated.
These views, with supporting analysis, were relayed to the appropriate political levels.
45. The primary problems with the CPT and PIT Bills are their internal incoherence, general
deficiencies in capturing tax avoidance arrangements and the proposed change in the
WHT rate from 10% to 0%. In October 2012, I and senior MIRA management addressed
the Parliamentary Select Committee which is considering the bills, the upshot of which
was that the Committee commissioned MIRA and I to re-write the Bills in order to make
them effective revenue collection instruments. That task resulted in the presentation of an
Income Tax Bill (being an enhanced combination of the CPT and PIT Bills) to the
Committee in May 2013. The Income Tax Bill addresses the principal problems
mentioned above.
46. The Income Tax Bill is currently under consideration by the Committee. Its passage is
subject to the willingness of MPs to accept its buttressed tax base provisions and the
speed of the Parliamentary process.
Tax Administration Act
47. Considerable time was spent on interpretation and application of the Tax Administration
Act, particularly the audit, investigation and tax recovery provisions, which Parliament
amended in 2011 in anticipation of the repeal of the BPT Act and the enactment of the
CPT and PIT Bills. Since those repeals and enactments have not (yet) occurred, there
were a number of legal issues surrounding the relationship between the audit,
investigation and tax recovery provisions in the amended Tax Administration Act and
those in the BPT Act. Taxpayers under challenge are citing the legislative inconsistencies
in their defence. This resulted in MIRA staff frequently seeking my advice on statutory
interpretation and procedural matters.
48. A particular problem with the amendment to the Tax Administration Act is that the
realistic deterrent monetary penalties for tax offences, which were proposed in the initial
Amendment Bill submitted to Parliament, were significantly diluted by MPs before the
Bill was enacted. An obvious consequence of that dilution is that the enacted penalties are
likely to be so insubstantial that they will fail to achieve their purpose as a punishment for
tax offences and a deterrent for taxpayers who are tempted to (re)offend.
49. In addition, considerable time was spent on interpretation and application of the tax laws
in relation to the Constitution (particularly, the Tax Administration Act) since taxpayers
under challenge repeatedly cited legislative inconsistencies both within the tax laws and
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with the Constitution in their defence. This resulted in MIRA staff again frequently
seeking my advice on statutory interpretation matters.
50. From the outset of the contract period, MIRA has been particularly active in issuing tax
rulings to give taxpayers guidance on how MIRA applies the new tax laws. 58 rulings
have been issued, some of them on very complex issues (for the benefit of more
sophisticated taxpayers). This has required extensive input from me as successive
iterations of draft rulings were produced.
51. There was an impetus in MIRA to collect outstanding fees, royalties and lease rental
payments, which were inherited from earlier regimes operating prior to the establishment
of MIRA. The recovery of some of these debts required legal action. This activity
resulted in the staff involved frequently seeking my advice.
52. At the request of the former Attorney General, in 2012 I drafted a new Tax
Administration Act, to overcome numerous deficiencies in the extant Act.
53. Each of these factors resulted in my devoting substantially more time to the Tax
Administration Act, and procedures related thereto, than anticipated in the Terms of
Reference.
SAP
54. The implementation of the SAP IT system was deferred due to delay in implementation
of the BPT Regulation and a contractual dispute. The first group of SAP personnel
arrived on site in April 2011. I supplied various information about the T-GST law and its
implementation to the external IT advisors and to members of the SAP team, including
tax return, payment and reporting procedures, and their associated recording and
documentation trails, and observation of actual customer counter transactions. SAP’s
work ceased in August 2011, then recommenced in earnest in 2012.
55. I undertook an extensive review of the SAP’s Blueprint documents on filing compliance,
taxpayer registration, returns processing and revenue accounting at the end of the first
phase of their work.
56. By the end of the contract period, MIRA staff operation of SAP’s Tax Revenue
Management module was live. Pilot testing of taxpayer online access was also under way
at the end of the contract period. A 100% data migration check was made, involving the
participation of all MIRA staff. Some data migration errors were detected, which were
being checked by a MIRA team at the end of the contract period.
57. The database stores only key figures from a taxpayer’s returns. The business intelligence
component for querying the database has not yet been installed due to budgetary
constraints.
Training and public awareness
58. Numerous public awareness and training sessions were conducted in Dhivehi and English
throughout the contract period. These covered taxation in general, BPT, GST,
international tax and tax administration procedures. The beneficiaries of the training
seminars and courses have been:
MIRA staff
Taxpayers
Registered auditors and tax advisors
Members and staff of the judiciary
Members and staff of the Tax Appeal Tribunal
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Members of the Prosecutor General’s Office
Members of the Attorney General’s Office
Students
The general public
ToR requirements
59. The ToR were revised in March 2012 (per Contract Variation No. 2 (2012-0459).
Original ToR (applicable to 28 March 2012)
60. For each detailed task in the original ToR, the table below sets out the tasks undertaken
and the state of completion.
Detailed Task Tasks Undertaken Status
A. Implementation of T-GST
(i) Give immediate and critical
support to ensure that:
a) all potential taxpayers have Data base obtained from the Completed. Now within
registered; Ministry of Economic general GST.
Development. There is
reasonable confidence that most
potential T-GST taxpayers were
registered, given the limited
scope of the tax.
b) the initial returns and payments Returns and payments Completed. Now within
are processed successfully processing procedures reviewed general GST.
with SAP personnel; operated
properly
c) all non-filers/payers, late Reporting system of returns and Completed
filers/payers and under-payers payments reviewed; defaulters
have been identified and identified; and referred to
processed Assessment and Audit for follow-
up; observed selected audits;
audit procedures operating
properly.
d) taxpayer services are provided Taxpayer awareness programme Completed
for this new tax, with taxpayer appears to have been largely
enquiries answered successful; support for taxpayers
quickly, regulations adapted was evident by speedy response
accordingly and a public to email queries, and programme
awareness programme is of compliance check visits to
implemented effectively resorts to ensure correct
compliance, prevention of future
taxpayer errors, and to answer
taxpayer queries. Commissioner
General’s draft circulars
reviewed prior to public release.
T-GST return guide reviewed
and amended.
e) a selection of taxpayers have Ongoing audit selection and On-going support given to
been audited strategy, and full desk audits the Tax Audit Advisor’s
begun, initially of nil returns in further refinement in context
the first four months of of general GST.
implementation of T-GST; the Completed
initial focus was on compliance
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Detailed Task Tasks Undertaken Status
checks.
(ii) To develop internal procedures Assessment and audit Completed
for all T-GST functions where procedures were written by the
required to support the Tax Audit Advisor. Returns,
administration of the Act payments and reporting
procedures are in place.
(iii) To advise MIRA management Initial familiarization discussions T-GST was replaced by
in implementation of SAP and held with SAP personnel. general GST, and
other aspects of T-GST discussions and liaison with
administration, including ensuring SAP took place in context of
that: adaptations for general
GST.
Completed
(iv) the T-GST business Initial familiarization discussions On-going advice was given
requirement is comprehensive and were held with SAP personnel. as and when need arose.
fit for SAP purposes, and business Advice was given to MIRA on Completed
issues raised during development SAP Blueprints and to SAP
are dealt with and decisions taken consultants and external IT
are comprehensive and consultant in the context of
resilient to future change (e.g. general GST.
BPT)
(a) the user testing programme Pilot testing completed Completed
based on the business requirement
is thorough, comprehensive and
suitable for signing off by MIRA
(b) integration and cut-over Pilot testing completed Completed
strategy from the initial T-GST
system (see above) is fit for
purpose
(c) a set of procedures for all T- Tax Audit Advisor dealt with this -
GST tax administration functions prior to commencement of
are available for SAP Income Tax Advisor’s
assignment. Reviewed returns
and payment processes with
SAP personnel.
(d) adequate user training and post User training completed Completed
implementation support is provided
by SAP
B. Implementation of BPT
(i) Review and amend BPT road BPT start date was 18 July 2011 Completed
map to ensure efficient Finalized regulations published in
administration of the BPT starting the Government Gazette on 18
st
1 July 2011 August 2011
Withholding Tax Guidelines
published 18 August 2011
Staff training and public
awareness campaign completed
successfully.
(ii) to review the BPT law, existing This task was a major Completed
draft manuals and regulations, preoccupation this contract,
identifying areas of potential particularly drafting the
alternative interpretations or regulations and identifying areas
administrative difficulties and help of potential alternative
draft or amend Regulations to interpretations or administrative
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Detailed Task Tasks Undertaken Status
clarify the law to support its difficulties.
administration
(iii) to develop internal procedures Taxpayer interim tax payment Completed
where required to support the and maximum directors’
administration of the Act remuneration and donations
deduction interactive calculators
developed. Review of various
return and payment forms
requirements and format
undertaken; withholding tax
certificate issuing procedures
established.
(iv) develop public awareness Public awareness seminars Completed
campaigns on BPT, including roll- carried out
out sessions with Maldives Information publications
National Chamber of Commerce, distributed
banking association, legal and Specific industry sector
accounting professional awareness seminars conducted
associations, and other concerned Numerous meetings with
agencies and associations. particular industry groups and
taxpayers
Comprehensive section on BPT
developed on MIRA website
(v) to ensure all potential taxpayers An examination was made of Completed
have registered and taxpayer business taxpayers that are
services are provided for this new required to register generally for
tax, with taxpayer enquiries tax purposes. This general
answered quickly, regulations registration applies for BPT
adapted accordingly and a public purposes. The Registrar of
awareness programme is Companies provides the MIRA
implemented effectively with notices of new companies
registered. Company registration
data from the Ministry of
Economic Development
reviewed. Observed provision of
taxpayer BPT services.
Observed and participated in
responses to queries.
Regulations implemented. Public
awareness programme carried
out successfully.
(vi) work with Tax Audit Specialist Discussions with Tax Audit Completed
in designing audit strategies and Advisor and review of draft of
audit manual for BPT and TGST audit manual undertaken.
and train MIRA staff implementing
strategies for desk and field audit
(vii) prepare Workshops and Informal on-the-job support Completed
support training arrangements with training undertaken with
dedicated institutions to enhance members of the facilitation
skills set at MIRA committee on drafting legislation
and support staff training
workshops. Formal staff training
seminars presented on BPT,
withholding tax and GST. Two
formal 6-week, 12-module staff
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Detailed Task Tasks Undertaken Status
training courses on tax policy
and international tax completed.
(viii) review the functional solution Review of functional solutions in Completed
proposed by [SAP] in the area of e- SAP Blueprints completed.
tax filing, and provide advice on
the development of an appropriate
Management Information System
(e.g., e-Tax Information
Management System in the
Maldives) or any other aspect of
BPT administration MIRA might
need advice on
C. Support of Tax Service
Department
(i) Help implement the T-GST compliance check visits Completed
transformation of MIRA into client- and BPT and GST public
based voluntary compliance tax awareness seminars, and
system, and develop a public associated publications, have
awareness campaign extolling the emphasised taxpayer voluntary
importance of taxation and the compliance and enhanced
rights, obligations, and awareness of taxpayer’s
responsibilities of taxpayers responsibilities.
(ii) Help develop a taxpayer service Observed operation of the Malé Completed
center and a dedicated web site to taxpayer service centre and
provide basic information on website; contributed to website
taxation issues content and development.
(iii) Identify terms of reference, Tax Administration Regulation Completed
work plans and requirements for and approval criteria and
Tax agents/advisors and for procedures completed. Training
national consultants/contractual materials package prepared.
staff and assist in initial selection
process
(iv) The advisor is required to Review of SAP Blueprints Completed
support MIRA for a successful completed. Advice provided as
implementation of SAP or any needs arose.
other aspects of BPT
administration, the MIRA might
need for advice. This includes,
among other things, ensuring that:
(v) the BPT business requirement Review of SAP Blueprints Completed
is comprehensive and fit for SAP completed. Advice provided as
purposes, and business issues needs arose.
raised during development are
dealt with and decisions taken are
comprehensive and (so far as
practicable) resilient to future
change
(a) the user testing programme Pilot testing completed Completed
based on the business requirement
is thorough, comprehensive and
suitable for signing off by MIRA
(b) a set of procedures for all BPT Tax Audit Advisor dealt with this -
tax administration functions are prior to commencement of
available for SAP Income Tax Advisor’s
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Detailed Task Tasks Undertaken Status
assignment. Reviewed returns
and payment processes with
SAP personnel.
(c) adequate user training and post User training undertaken Completed
implementation support is provided
by SAP
D. Support of developing a
Master Plan for the MIRA
(i) To assist MIRA staff in Draft Master Plan completed Completed
designing a 5 year Master Plan
including Strategic and Action Plan
of MIRA
(ii) To assist staff in implementing Draft Master Plan currently with Not yet at implementation
the Master Plan stakeholders for comment. Not stage.
yet at implementation stage.
E. Support in coordinating
Revenue Management activities
and training
(i) In association with the Various short-term training Completed
Commissioner General provide experts from IMF, Japan and
guidance to other short-term Singapore engaged
experts in the area of
revenue management
(ii) In coordination with training Designed and carried out Completed
experts actively participate in workshops on BPT, GST and tax
design of workshops, provide administration law and practice,
dedicated training to MIRA staff, tax policy and international tax
and support training arrangements with MIRA staff, related
with dedicated institutions to Government institutions, the
enhance skills set at MIRA judiciary and taxpayers. Advised
on overseas training courses for
staff on international tax and
transfer pricing.
Three international accounting
firms engaged to provide training
on IFRS and audit.
(iii) In coordination with capacity Capacity development specialist Completed
development specialist, support not engaged; I have carried out
measures to enhance capacity at on-the-job training and skills
MIRA through on the job-training, transfer with policy, audit and
identification and selection of pool service staff. Overseas training
of temporary staff, and developing courses identified for appropriate
effective measures to transfer skills MIRA staff
(iv) Identify terms of reference and Identified and assisted as need Completed
work plans for national arose
consultants/contractual staff and
assist in selection process
F. Support implementation of
selected aspects of BPT
(i) Identify terms of reference and Identified and assisted as need Completed
work plans for the short-term arose
experts needed for:
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Detailed Task Tasks Undertaken Status
(a) Help with the production of Assisted in compilation and Completed
essential brochures about the BPT review of BPT brochures
which will assist taxpayers in
meeting their obligations
(b) Advice on implementing the Tax Appeal Tribunal (TAT) was Completed
grievance and appeals procedures already established; reviewed
in the MIRA and assistance with and amended draft TAT
the establishment of the Tax Regulations; TAT personnel
Appeal Tribunal and train its staff attended MIRA tax policy and
international tax course
(c) A trainer in tax accounting to BPT and GST seminars for staff Completed
train MIRA staff as well as selected and stakeholders have
stakeholder associations addressed tax accounting.
Ernst & Young and KPMG
delivered tax accounting/IFRS
courses to MIRA staff
G. Review and develop the next
stage of tax reform
(i) help develop a set of pre- GST was introduced on 2 No further work required
requirements for a second phase October 2011
of revenue reforms to possibly
cover the introduction of new taxes
proposed by the Government,
including the exploratory work on
the Future Introduction of General
Sales Tax (GST)
(a) Review the 1998 report of New GST was introduced on 2 No further work required
Zealand experts on the "Feasibility October 2011
of Introducing a General Sales Tax
in the Maldives" and assess its
relevance at the present time
(b) Establish the scope for and the T-GST was embodied into GST No further work required
date for the feasibility of converting on 2 October 2011
Tourism-GST into an economy-
wide GST
(c) Help MOFT/MIRA identify the GST public awareness seminars Completed
potential GST payers and initiate carried out; initial focus is on
their education for a possible future importers and large taxpayers;
GST regular (weekend) public
compliance checks undertaken
(d) Review MOFT/MIRA's GST was introduced on 2 Completed
experience with administering the October 2011; observed that
T-GST and establish its capacity to administration of T-GST was
administer a broader GST successful
(e) Advise MOFT/MIRA on the Technical assistance provided. Completed
kinds and amounts of technical Draft and final legislation and
assistance that the country would regulations, forms and education
need to help it make necessary material reviewed.
policy decisions regarding GST Staff training conducted.
(turnover threshold, exemptions, Public awareness campaign
zero ratings, tax rates, etc.) and undertaken.
advise on securing international Rulings issued
advisors to help them draft
legislation and regulations, audit
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Detailed Task Tasks Undertaken Status
strategies and manuals, tax return
forms, taxpayer publicity and
educational materials, assist with
staff training and computer
facilities, etc.
(f) Help MOFT/MIRA develop a GST is already operative No further work required
step-by-step and time-bound
action plan for adopting and
instituting GST
Revised ToR (applicable from 29 March 2012)
Detailed Task Tasks Undertaken Future Work Required
1. Development of regulatory
framework
a) Conduct a review of current tax Report of revenue impact of Completed
revenue extant CPT Act and PIT Bill.
Report on revenue performance
b) Conduct a review of the existing Tax Administration Act reviewed; Completed
legal and regulatory framework new Tax Administration Act
relating to the tax revenue drafted; Tax Administration
system and recommend a Regulation drafted and
streamlined approach for the implemented
revenue administration Re-wrote CPT Act and PIT Bill as
new enhanced Income Tax Bill,
currently before Parliament
c) Study current rules and Tax Administration Act reviewed; Completed
regulations concerning tax new Tax Administration Act
administration and suggest drafted; Tax Administration
necessary amendments and Regulation drafted and
modifications if new taxes are implemented.
introduced Significant enhancement to
primary and secondary
legislation have been drafted
d) Develop road map for MIRA, Embodied in Strategic and Action Completed
with detailed plan to enhance Plan
revenue system
e) Conduct a thorough analysis of Report on revenue performance Completed
current taxes and suggest and strengthening of existing tax
possible new taxes in line with laws and possible new taxes
best practices, to increase
revenue
f) Conduct training and public Regular seminars undertaken Completed
awareness programs in
consultation with MIRA
g) Prepare report capturing Embodied in final report Completed
findings and recommendations
to be presented during the
workshop
h) Support in drafting MIRA Objections and appeal Completed
internal objection and appeal procedures developed and
procedures and guide to taxpayer guide produced
taxpayers
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Detailed Task Tasks Undertaken Future Work Required
2. Implementation of Goods and
Services Tax (GST)
a) Review the GST law, existing Addressed on a daily basis as Completed
draft Manuals and Regulations, issues arise; numerous reports
identifying areas of potential and rulings issued
alternative interpretations or
administrative difficulties and
assist in drafting amendments
to Regulations to clarify the law
to support its administration
b) Support MIRA management in Liaised with IT consultants and Completed
activities required for a SAP personnel
successful implementation of
SAP or any other aspects of
GST administration about which
MIRA might need advice. This
includes, among other things,
ensuring that:
i. The GST business requirement SAP Blueprint reviewed and Completed
is comprehensive and fit for comments provided
SAP purposes, and business
issues raised during
development are dealt with and
decisions taken are
comprehensive and resilient to
future change
ii. The user testing program based User testing completed (tourism Completed
on the business requirement is sector only)
thorough, comprehensive and
suitable for signing off by MIRA
iii. The integration and cut-over Pilot testing completed Completed
strategy from the initial GST (tourism sector only)
system is fit for the purpose
iv. Adequate user training and User training completed Completed
post-implementation support is
provided by SAP
3. Implementation of Business
Profit Tax (BPT) (to be
replaced by the Corporate
Profit Tax (CPT) and Personal
Income Tax (PIT))
a) Review of CPT and PIT laws, Review undertaken and reports Completed
regulations and existing draft submitted to Government.
manuals, identifying areas of Representations made to
potential alternative Parliamentary Economic
interpretations or administrative Committee.
difficulties and help draft CPT and PIT Bills re-written into
regulations to support its enhanced income Tax Bill,
efficient administration currently before Parliamentary
Economic Committee
b) Develop internal procedures - Awaiting outcome of
supporting administration of the Parliament’s deliberations
CPT and PIT [Acts] on the Income Tax Bill
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Detailed Task Tasks Undertaken Future Work Required
c) Develop public awareness - Awaiting outcome of
campaigns about the CPT and Parliament’s deliberations
PIT, including roll-out sessions on the Income Tax Bill
with stakeholders
d) Ensure that all potential - Awaiting outcome of
taxpayers are registered and Parliament’s deliberations
that taxpayer services are on the Income Tax Bill
provided for the new taxes, with
taxpayer enquiries answered
quickly, regulations adapted
accordingly, and a public
awareness program
implemented effectively
e) Work with the tax audit expert Discussions with Tax Audit Completed
to design audit strategies and Advisor and review of draft of
an audit manual for the taxes audit manual undertaken.
and train MIRA staff on On-going liaison with Tax Audit
implementing strategies for Advisor
desk and field audits
f) Prepare workshops and support BPT workshops/training Completed
training arrangements with undertaken with MIRA staff, the
dedicated institutions to judiciary and taxpayers
enhance skills set at MIRA
1. Improving taxpayer
compliance
a) Design and conduct of a Draft taxpayer survey Design completed
taxpayer satisfaction survey questionnaires prepared
b) Support in establishing a large Decision on establishment of -
taxpayer unit (LTU), including LTU not yet taken
criteria to determine which
taxpayers are to be included in
the LTU
c) Support in developing a Ongoing assistance given in Completed
compliance programme [...] developing and undertaking
compliance activities
d) With assistance of MIRA staff, Draft comprehensive GST Draft comprehensive GST
prepare a comprehensive Guidebook prepared. Guidebook completed
taxpayer guidebook on GST, BPT/CPT/PIT (Income Tax)
BPT (CPT) and PIT guidebook deferred pending
passing of final legislation
2. Enhancement of training
a) Assist in establishing a training Preliminary discussions held with Completed
institute Commissioner General; now
under review
b) Support to establish a training Training centre established; on- Completed
centre at MIRA, to provide going regular staff and taxpayer
regular training to taxpayers training undertaken
and to develop on-going staff
training
c) Development of a Comprehensive BPT and GST Comprehensive BPT and
comprehensive BPT (CPT), PIT training programmes developed. GST training programmes
and GST training programme CPT/PIT (Income Tax) training completed
programmes deferred pending
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Detailed Task Tasks Undertaken Future Work Required
passing of final legislation
d) Conduct “train the trainers” Ongoing train-the-trainers Completed
training programmes training undertaken as new laws
and regulations made (to allow
trainers can instruct in Dhivehi)
e) Support in training tax agents Selection criteria completed Preparations completed;
and identifying the Training programme syllabus Tax agent training has not
requirements to select tax and materials compiled yet begun
agents
3. Development of Master Plan
for MIRA
a) Assist MIRA staff in designing a Draft Master Plan completed and Completed
5-year Master Plan, including a currently with stakeholders for
Strategic and Action Plan of comment
MIRA
b) Assist staff in implementing the Plan not yet implement since still Draft Master Plan completed
Master Plan circulating for stakeholder
comment
4. Development of a benchmark
model tax treaty for the
Maldives
a) Provide guidance to develop a Completed and presented to Completed
Maldives model tax treaty MIRA Board of Directors
b) Provide support on capacity Preliminary preparatory work Completed
building in international taxation completed
and double tax treaties Training programme undertaken
Drafting and amending tax
information exchange
agreements for negotiation
undertaken
5. Review and help develop the -
next stage of tax reform
a) Help develop a set of pre- No new taxes proposed by the Completed
requirements for a second Government
phase of revenue reforms to Report sent to Minister of
possibly cover the introduction Finance suggesting buttressing
of new taxes proposed by the existing taxes and proposing new
Government taxes
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