Maldives makes major cut to tourism lease rent penalty

Tourism authorities in Maldives on Monday made a significant cut to the penalty payable for delayed lease rent payments.

Under an amendment to the regulations on tourism lease rent, the penalty rate has been reduced from 0.5 per cent per day to 0.0493 per cent per day.

What’s the impact?

In case there is a delay in lease rent payment, the fines will now be levied at the rate of 0.0493 per cent per day on the amount of lease rent outstanding – causing a sizeable difference in the amounts payable.

By way of example, under the previous regime, if there is an amount of $100,000 payable in overdue lease rent, the old rules would have asked for a daily penalty of $500 per day.

However, under the new revised rate, the daily penalty would be just $49.30 per day — a significant reduction/saving of $450.70 per day or 90.14 per cent.

It is unclear from the amendment itself, if the benefit of this amendment may be available for those that are already in default, and if penalties they have to pay would now be subject to the new lesser rates.

It is understood that the general rule for these changes is that they would all operate prospectively – into the future.

But given the significant amount of overdue amounts, and large number of defaulters, it is hoped that the government may arrive at a favourable policy decision to provide the benefit of this amendment to all parties who currently have unpaid lease rent amounts to pay.

What’s lease rent?

Maldives allows tourism leases up to 99 years, with rent calculated based on the land area of the island leased.

Lease rent, also called Tourism Land Rent, has to be paid in advance for each quarter. By that requirement, tourist resorts can now get the rent payable for the third and fourth quarter of the year deferred. 

Failure to pay lease rent attracts a penalty of 0.5 per cent of the amount that is due. The penalty is levied for each day of delay, and continues to be applied until such time the lease rent amount and accrued penalties are all paid.

Coronavirus hit

The amendment follows a relief measure by the government to offer a year-long deferment on the lease rent payable by resorts for the second half of the year.

These measures come as tourism businesses in the Maldives reel from the impact caused by the coronavirus pandemic.

The coronavirus outbreak has hit the Maldivian economy hard, as travel restrictions and other preventive measures affect the country’s lucrative tourism industry, which contributes the bulk of the island nation’s state revenue and foreign reserves.

Before the pandemic, the government had been bullish about tourism prospects, targeting two million, high-spending holidaymakers this year after last year’s record 1.7 million.

However, only 382,760 tourists visited the Maldives before the country closed its borders on March 27. It was a 40.8 per cent decline over the 646,092 that visited the Maldives from January to March last year.

Meanwhile, the government’s best case scenario now puts total tourist arrivals for 2020 just above 800,000. 

Tourism has been the bedrock of the Maldives’ economic success. The $5 billion-dollar economy grew by 6.7 per cent in 2018 with tourism generating 60 per cent of foreign income.

However, the government is at present projecting a possible 13 per cent economic contraction this year — an estimated $778 million hit.

On March 8, Maldives reported its first cases of the novel coronavirus, as two hotel employees tested positive for Covid-19 at a luxury resort in the archipelago.

Eighteen more cases — all foreigners working or staying resorts and liveaboard vessels except five Maldivians who had returned from abroad — were later identified.

A six-case cluster of locals, detected in capital Male on April 15, confirmed community transmission of the coronavirus. Several more clusters have since been identified, bringing the total number of confirmed case in the Maldives to 4,293.

Nineteen deaths have been reported, while 2,670 have made full recoveries.

The Maldives announced a state of public health emergency on March 12, the first such declaration under a recent public health protection law.

The public health emergency declaration allowed the government to introduce a series of unprecedented restrictive and social distancing measures, including stay-at-home orders in capital Male and its suburbs, a ban on inter-island transport and public gatherings across the country, and a nationwide closing of government offices, schools, colleges and universities.

Non-essential services and public places in the capital such as gyms, cinemas and parks were also shut.

Restaurants and cafes in the capital were asked to stop dine-in service and switch to takeaway and delivery.

A nationwide shutdown of all guesthouses, city hotels and spa facilities located on inhabited islands was also ordered.

The restrictions are now being eased in phases, with the third phase measures now active. Borders have also reopened.

Note: This article has been reproduced and adapted to fit our publishing guidelines with permission from its author: Nasheed & Co., a commercial law firm in the Maldives. The original article can be viewed here.

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