Airline Operators Express Concerns Over Proposed Departure Tax Hike in Maldives

The Airline Operators Association (AOA) has voiced significant concerns over the Maldivian government’s proposed 100% increase in passenger departure taxes, set to take effect on December 1, 2024. While acknowledging the government’s need for additional revenue, the AOA warns that the drastic hike could severely impact the tourism and aviation sectors, which are critical to the Maldivian economy.

The Maldives relies heavily on tourism, with the sector generating over MVR 13.5 billion in 2023. The AOA fears that a steep increase in departure taxes could make the Maldives less attractive to travelers, particularly those who are price-sensitive. This may result in reduced tourist arrivals, lower hotel occupancy rates, and decreased spending, which would ultimately harm the economy and reduce government revenue rather than boosting it.

Tourism revenue plays a pivotal role in the country’s foreign exchange earnings and economic stability. According to the AOA, for every USD 5 spent on tourism marketing, the government earns USD 600. Any disruption to the flow of visitors could exacerbate the ongoing dollar crisis and global economic uncertainty.

The AOA also pointed out that the proposed tax increase contradicts guidelines set by the International Civil Aviation Organization (ICAO). ICAO’s Doc 9082 stipulates that airport charges must be cost-related and implemented gradually. The sudden 100% hike, untied to any improvement in services, disproportionately affects international travelers and fails to adhere to the gradual implementation approach recommended by ICAO. The AOA expressed dissatisfaction with the lack of adequate consultation with industry stakeholders.

Instead of burdening the tourism sector, the AOA is urging the government to explore other avenues for generating revenue. Diversifying income streams, improving efficiency in government spending, or fostering public-private partnerships for infrastructure development could all help achieve fiscal goals without negatively impacting tourism. The AOA also recommends phasing in any tax increases, giving airlines and tourists time to adjust and preventing a sudden shift in travel trends toward competing destinations like Sri Lanka, Mauritius, and Seychelles.

The AOA also raised concerns over the Airport Development Fee (ADF), which was increased in 2022 with little visible improvement in services at Velana International Airport. Without enhanced facilities, travelers may become dissatisfied, potentially harming the Maldives’ reputation as a top-tier travel destination.

High-end tourism, a vital contributor to the Maldives’ economy, is also at risk. The number of private jet arrivals has already been declining, with permit issuances dropping from 2,350 in 2022 to just 1,060 in 2024. The AOA warns that further tax increases could accelerate this trend, reducing the number of high-spending visitors and jeopardizing the luxury resort sector.

The press release highlights that even though similar tourist destinations like Fiji and Seychelles impose comparable or lower taxes, the sharp increase in the Maldives may push travelers toward more affordable alternatives. Additionally, environmental policies, such as those recommended by the UNFCCC, have already led to higher airfares, which could further reduce travel demand.

In response to the proposed tax hike, the AOA, in collaboration with the International Air Transport Association (IATA), has formally raised its concerns with the Maldivian government. The organizations recommend adopting a phased tax implementation strategy, as well as exploring alternative ways to generate revenue without jeopardizing the long-term sustainability of the tourism and aviation sectors.

In conclusion, while the government’s need to raise revenue is clear, the AOA argues that the sharp increase in departure taxes could have far-reaching consequences for the Maldivian economy, affecting both tourism and foreign exchange. By adopting a more balanced approach, the Maldives can protect its vital tourism industry while still achieving its fiscal objectives.