Are Tax Hikes Contributing to Declining Tourist Arrivals?

The Maldives has witnessed a decline in tourist arrivals in May, compared to the same period last year. Industry leaders are raising concerns that the recent increase in the Tourism Goods and Services Tax (T-GST) may be contributing factor.

According to data released by the Ministry of Tourism, tourist arrivals in May fell by 5.7% compared to the previous year. By May 24, 94,604 tourists had arrived in the Maldives this month, indicating, a decrease of 6,626 visitors compared to the same period last year. Approximately 5,437 tourists arrived daily, typically spending an average of 7.8 days exploring the beautiful islands.

Despite the decline, certain markets remain prominent contributors to the Maldives’ tourism. The top five source markets for tourist arrivals are Russia, India, the United Kingdom, Italy, and Germany. Russia accounts for the highest number of visitors, with 91,587 tourists representing 11.7% of the total arrivals. India follows closely with 89,619 tourists (11.4% of the total arrival number), while the United Kingdom, Italy, and Germany contribute 9.1%, 7.6%, and 7.3%, respectively.

The Ministry of Tourism also provided insight into the current state of tourist facilities in the Maldives, revealing the presence of 1,241 establishments offering a total of 60,734 beds for visitors. The Maldives has total of 8m pax arrival capacity with this number of beds in operation for a year with 70% utilization. Last year total visitors stood at 1.675m visitors. However, given the global economic situation, especially from the source markets, it is likely The Maldives will be able to reach last year’s numbers.

However, industry experts have raised concerns that the recent increase in the Tourism Goods and Services Tax (T-GST), combined with the global economic situation, may have contributed to the significant decline in arrivals in the summer period. The T-GST was raised from 12% to 16% starting January 1, 2023. Many tourism stakeholders, including the Maldives Association of Tourism Industry (MATI) and the Maldives Association of Travel Agents and Tour Operators (MATATO), requested the government to delay the tax hike by a year, emphasizing the need to recover from the decline in tourism due to the COVID-19 pandemic.

Tourism industry insiders argue that it is crucial to provide advance notice for tax hikes, preferably at least a year, as the resort and hotel contracts with tour operators and airlines are typically long-term and require bookings made well in advance. The parliament passed the tax increase bill in November 2022, and the tax hike took effect from January 2023; many resorts and tour operators had no choice but to absorb the additional costs.

While the decline in tourist arrivals during the low season is not entirely unexpected, the government and tourism authorities need to address the concerns raised by industry stakeholders. By striking a balance between taxation and the long-term sustainability of the tourism industry, the Maldives can continue to flourish as a sought-after destination and attract visitors throughout the year, bolstering its economy and preserving its natural wonders.

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