MATI says proposed 40% forex conversion requirement ‘not viable’ for resorts

The Maldives Association of Tourism Industry (MATI) has raised concerns over the government’s plan to require resorts to convert 40% of their total foreign currency sales through domestic banks, saying the proposed increase is not viable given the range of US dollar-denominated costs already borne by resort operators.

In a statement issued on Monday, MATI said it was “deeply concerned” that the 40% requirement was being proposed only weeks after discussions with the Maldives Monetary Authority (MMA), during which the central bank had proposed a uniform conversion requirement of 20% for Category A establishments. The association said moving from 20% to 40% would amount to a further 100% increase.

MATI said resorts already make substantial payments in US dollars for fuel, salaries, service charge, supplies, logistics and guest transfers, in addition to Tourism Goods and Services Tax (TGST), green tax, withholding tax, income tax, tourism land rent and foreign currency loan obligations.

The statement followed an announcement by the government on Monday that it plans to amend the Foreign Currency Act to require resorts to convert 40% of their foreign currency revenue through banks in the Maldives.

MMA Governor Ahmed Munawar said at a press conference at the President’s Office that the government had decided to double the proposed mandatory conversion requirement for resorts from 20% to 40%. The government also plans to shorten the period within which resorts must meet their conversion obligation from once every three months to once a month.

The 40% requirement represents a further change to amendments already proposed to the Foreign Currency Act. The government had earlier proposed removing the option that allows resorts to convert USD 500 per tourist based on monthly arrivals and replacing it with a requirement for all resorts to convert 20% of their foreign currency revenue. The 40% requirement is now expected to be introduced as an additional amendment.

According to MATI, the association met the MMA Governor earlier in August to discuss the conversion requirements. During that meeting, the MMA proposed removing the USD 500-per-tourist option and introducing a uniform 20% conversion requirement for Category A establishments.

MATI said its position during the discussions was that the mandatory conversion requirement should not exceed 10% of total sales. It also asked the authorities to resolve pending exemption requests submitted by resorts that have been unable to meet the existing conversion requirements.

The latest proposal followed a meeting on Sunday between MATI’s Executive Board and government officials at the President’s Office. MATI said the meeting was attended by Cabinet ministers and government officials and that the association was informed that ongoing law enforcement investigations had allegedly identified some resort operators as being involved in transactions that contributed to the parallel foreign currency market and increased the parallel exchange rate.

MATI said it had no knowledge of such activities and reiterated that it has consistently advised its members to comply with laws and regulations.

At Monday’s press conference, attended by Munawar, Minister of Homeland Security, Labour and Technology Ali Ihusaan, Minister of Economic Development, Transport and Trade Mohamed Saeed, and Minister of Finance and Public Enterprises Hassan Zareer, the government referred to allegations involving resort operators while announcing the 40% conversion proposal.

MATI said allegations concerning the conduct of individual resort operators that remain under investigation should not be used as the basis for a measure applying to the entire resort industry.

“Nor is it accurate or fair to attribute pressure on the parallel market solely to resort operators,” the association said.

The MMA has said that 78% of resorts are complying with existing foreign currency conversion requirements, while 20% are not converting foreign currency at the required level. Two resorts have not converted any foreign currency under the requirement, according to figures released by the central bank.

The government’s proposed amendments also include requiring resorts to maintain designated foreign currency accounts with local banks and use point-of-sale systems that deposit revenue into accounts held in the Maldives. Further reporting requirements would require resorts to provide the MMA with information on foreign loans and participate in surveys relating to foreign investment inflows.

Munawar has said the central bank’s longer-term objective is to move towards conversion of all foreign currency revenue and increase the use of the Maldivian Rufiyaa for domestic transactions.

MATI said it represents 146 resorts among its 200 members, describing its resort members as some of the country’s largest investors, foreign currency earners and converters of foreign currency into the domestic economy.

The association said the tourism industry has engaged with the government on issues concerning the country’s foreign exchange position and would continue discussions with the government, MMA and other stakeholders on the proposed measures.