The Airlines Operators Association (AOA) are voicing their concerns regarding the proposed 100% increase in passenger departure taxes, set to take effect on December 1, 2024. While acknowledging the government’s need to boost revenue, believe this sharp hike could have significant unintended consequences for the aviation and tourism sectors, both of which are vital to the Maldivian economy.

Key Highlights:

• Economic Impact on Tourism: Tourism is the lifeblood of the Maldivian economy, generating over MVR 13.5 billion in 2023 and supporting countless jobs. A sudden, substantial increase in departure taxes risks destabilizing this balance, making the Maldives less attractive to price-sensitive travelers. This could lead to reduced tourist arrivals, lower hotel occupancy, decreased local spending, and ultimately, a drop in government revenue.

• Foreign Exchange and Economic Stability: Tourism revenue is essential for foreign exchange and the country’s economic stability. For every USD 5 spent on tourism marketing, the government earns USD 600. Disruptions to this steady visitor flow could ripple through the economy, exacerbating the ongoing dollar crisis and global economic uncertainty, as noted in the MATATO newsletter, Issue 05 (February 2024).

• Contradictions with ICAO Policy: According to ICAO’s Doc 9082, airport charges must be cost-related, non-discriminatory, and introduced gradually. The proposed 100% tax hike violates these principles, as it is not tied to service improvements, disproportionately impacts international travelers, and lacks the gradual implementation recommended by ICAO. The policy also emphasizes the need for user consultation before imposing new charges, which has not been adequately addressed.

• Alternative Revenue Generation: Rather than placing the burden on the tourism sector, the AOA urge the government to explore alternative avenues for revenue generation. With tourism already contributing significantly to national income, other sectors could be developed and diversified to support fiscal goals. Additionally, optimizing the use of existing fees and taxes, improving efficiency in government spending, or encouraging public-private partnerships for infrastructure development could all provide viable alternatives to raising taxes on departing tourists.

• Phased Implementation: The AOA recommend that any increase in departure taxes be introduced gradually, allowing both airlines and tourists to adjust. This would help maintain the Maldives’ competitive edge in a global tourism market where destinations like Sri Lanka, Mauritius, and Seychelles are actively vying for the same travelers. A sudden tax hike could push potential visitors to these alternative destinations, particularly as tourists become more price conscious.

• Airport Development Fee (ADF) Concerns: Despite the 2022 increase in the Airport Development Fee (ADF), there has been little to no visible improvement in the services or facilities at Velana International Airport. Travelers expect enhanced services in exchange for higher fees. The absence of such improvement’s risks dissatisfaction, which could damage the Maldives’ reputation as a premier travel destination.

• Impact on High-End Travelers: Even high-end travelers are becoming more cost-sensitive, as seen in the decline of private jet arrivals to the Maldives. A significant increase in departure taxes could accelerate this trend, reducing the number of high spending visitors who are essential to supporting the luxury resort sector and other premium services.

In recent years, we have seen a notable decline in the number of permits issued for general aviation (Privet Jets). The statistics reveal the following:

- 2022: 2,350 permits issued

- 2023: 2,000 permits issued

- 2024: 1,060 permits issued to date (As of September 2023, only 1,200 permits were issued, indicating a further decrease.)

This downward trend raises significant concerns for the industry’s future. Additionally, the increasing tax rates are becoming a critical factor. Here’s a comparison of arrival taxes in similar destinations:

- Fiji: ADT USD 170

- Bali: Arrival Tax USD 15

- Seychelles: USD 50.00 per head

- Mauritius: USD 30-60 arrival tax per head

UNFCCC has highlighted several ways in which environmental policies could impact airfares. Implementing these policies often involves additional costs for airlines, which can be passed on to passengers in the form of higher ticket prices. UNFCC Case study on Maldives has highlighted,

- The increased cost of air travel, reflected in higher airfares, reduces travel and tourism demand.

- UNFCC Simulation suggests a strong negative correlation between higher air fares and tourism demand.

The Airlines Operators Association, together with the International Air Transport Association (IATA), has formally raised concerns and is urging the Goverment to reconsider the proposed tax increase. The AOA recommends adopting a phased approach to align with ICAO’s Doc 9082 guidelines, and exploring alternative revenue generation methods that do not disproportionately impact the tourism industry. The AOA in collaboration with IATA remains open to discussions to find a balanced solution that supports the government's fiscal goals while preserving the long-term sustainability of the tourism and aviation sectors.