Economic Minister Mohamed Saeed has admitted he does not know the reason for the sharp decline in state revenue this year, which is mainly due to a steep drop in import duty.
According to the latest fiscal report from the Finance Ministry, state revenue as of February 6 has fallen by 18.8 percent compared to the same period last year. The biggest decline is in import duties, which have dropped from MVR 385 million to MVR 138 million—a staggering 64 percent decrease.
This sharp drop has raised questions about whether the Free Trade Agreement (FTA) with China, which took effect at the start of this year, contributed to the decline. However, Saeed has rejected this link, though he has not provided any alternative explanation.
During a press conference on Tuesday, Saeed told reporters he was unsure of the exact reason for the decline but reiterated that it had nothing to do with the FTA.
“I cannot make a comment until I go through the details. I cannot say why exactly. The narrative from the Parliament is that it was due to a decline in the import or sale of cigarettes. I am unable to say at this time that yes, that is the reason. I cannot know until I look at the statistics,” he said.
Saeed suggested that detailed information regarding the impact of the cigarette duty hike could be obtained from the Finance Ministry, the Maldives Inland Revenue Authority (MIRA), and Maldives Customs Service.
While Saeed could not explain the revenue drop, he blamed the economic crisis on the previous administration, claiming that poor decisions by the former government were to blame. He also dismissed concerns about the country’s economic situation, stating that the economy is expected to grow by 6.4 percent this year.
However, Deputy Speaker Ahmed Nazim, a senior politician from the ruling People’s National Congress (PNC), said during a Parliament Public Accounts Committee meeting on Monday that there has been no reduction in government spending or improvement in the economic situation.
Nazim also pointed out that while the government has not given a reason for the revenue decline, statistics suggest it is due to a slowdown in cigarette imports. He explained that since the import duty on cigarettes was doubled on November 1 last year, businesses had stockpiled their supplies in advance, leading to lower imports now.
On November 1, the Maldives raised the import duty on cigarettes and beedi from MVR 3 to MVR 8 per cigarette and increased the ad valorem tax by 50 percent. As a result, tobacco importers raised cigarette prices, with a pack now costing between MVR 240 to MVR 290 and a carton reaching up to MVR 2,240.
Businesses initially reported a drop in cigarette sales, but there has been an increase in sales of rolling tobacco and an uptick in cigarette smuggling. Just before the tax hike, authorities raided The Hawks’ boatyard in K. Thilafushi and seized 200 master cartons of smuggled Manchester brand cigarettes. Earlier this month, police launched an investigation after 955 cases of cigarettes and tobacco products were illegally removed from two bonded warehouses, costing the state over MVR 67.9 million in lost duties.
Despite these developments, the government has yet to provide a clear explanation for the revenue decline, leaving the public and businesses in uncertainty.
