Tax Administration Reform in the Maldives

The primary purpose of taxes is to raise revenue to finance government expenditure on public goods and services, including welfare, that markets would not likely deliver. If government is—on balance—a very positive force in society, then so are taxes: they are obligations we must deliver to enjoy vital services and benefits that governments offer in myriad ways.

By 2008, lower-than-expected tourist arrivals and fish exports, combined with high government spending on social needs, subsidies, and public sector wages, had engendered structural problems and a balance of payments crisis in the Maldives—a small, open economy that is vulnerable to shocks. It became necessary to mobilize revenue for fiscal resilience, this to cushion against future economic and other reversals and, especially, enlarge opportunity. In 2009, the Government of the Maldives and the Asian Development Bank (ADB) linked arms to speed economic recovery.

The outcomes of the ADB-assisted Economic Reform Program, validated as successful by independent evaluation in 2014, were greater fiscal space in the budget and financial flexibility through a more diversified tax base and rationalized expenditure, better debt management, more efficient privatization of state-owned enterprises, and deepening of the financial market with the issuance of treasury bills and bonds.