Inflation deterred financial aid acquisition, no alternative to raising GST rates: Minister Ameer

Minister of Finance Ibrahim Ameer revealed that global inflation has deterred hopes of international financial aid acquisition and the only remaining alternative was increasing Goods and Services Tax (GST) and Tourism Goods and Services Tax (TGST) rates.

Responding to a question raised by the Member of Parliament for the Medhu Henveiru constituency, Ali Azim, Minister Ameer stated that accommodating and adjusting the recurrent expenditure was one of the reasons for proposing an increase to GST and TGST rates. He said that in addition to that the government has devised objectives to minimize state expenses as well.

Azim questioned the existence of an alternative to settle state finances without the MVR 2.5 billion expected to be generated through increased GST and TGST rates.

Ameer stated that GST and TGST rates have to be increased in order to achieve the fiscal strategy targets.

When the MP for Thimarafushi constituency, Abdulla Riyaz asked why the government intended to increase tax rates rather than focusing on minimizing state expenditure, Ameer responded that despite attempts to minimize expenses, it had been challenging. Ameer noted that the most significant expense had been civil servant salaries and investments in the private sector.

Since countries of the European Union (EU) and America had raised their interest rates due to inflationary pressure, Ameer stated that the opportunity to finance the state budget deficit to fulfill its financial gaps has been deterred. Therefore, Ameer said that this was a major reason for levying a higher GST and TGST.

The tax bill proposed by the government attempts to raise GST and TGST rates from 6 percent and 12 percent to 8 percent and 16 percent, respectively, effective January 2023.