Resorts under immense pressure: mandated to exchange 40 percent of gross revenue, all taxes and fees already being settled in USD

A tourism industry expert has stated that resorts are facing significant operational challenges following the ratification of the First Amendment to the Foreign Exchange Act, which mandates that resorts must convert 40 percent of their total US dollar earnings into local currency through banks.

Following the recent legislative amendments, resorts are now mandated to exchange 40 percent of their gross sales with the bank, replacing the previous requirement of exchanging $500 per tourist.

He stated that since the legislative amendments specifically target resorts, they are the ones who will bear the brunt of the resulting burden.

President Muizzu stated that this measure will increase the government's foreign currency reserves. He further noted that the 40 percent conversion requirement can be implemented with significant ease.

An industry expert who spoke to this outlet stated that while requiring resorts to exchange 40 percent of their gross income will increase the government's foreign currency reserves, it will pose significant operational challenges for resorts and cause investors to hesitate.

Speaking on condition of anonymity to clarify the implications of the policy, he explained that since "gross income" refers to pre-tax earnings, the requirement to exchange 40 percent of that revenue—combined with existing obligations to pay taxes and fees in dollars—would ultimately mean businesses have to surrender approximately 80 percent of their total dollar income to the state.

"Look at the current situation; they claim that converting 40 percent of resort earnings will not pose any difficulties. How can that be the case? TGST is paid in dollars, income tax is paid in dollars, green tax is paid in dollars, land rent is paid in dollars, withholding tax is paid in dollars, and even the resort's contributions to employee pensions are paid in dollars. All of these are dollar payments made in addition to that 40 percent requirement," he said.

He noted that Tourism Goods and Services Tax (TGST) is levied at 17 percent, while a Green Tax of $12 is charged per tourist. Additionally, he highlighted that withholding tax stands at 12 percent, income tax at 15 percent, and the 7 percent pension contribution is also paid in US dollars.

"How can a resort remain operational after paying all these expenses in dollars and then being required to convert 40 percent of its total revenue?" he questioned.

Furthermore, he noted that resorts also settle their payments for fuel supplied by STO Fuel Supplies in US dollars.

"All the supplies required by resorts, including food items, are imported from abroad, and these must also be paid for in dollars," he said.

Despite these prevailing circumstances, President Muizzu maintained that resorts would face no difficulties in converting 40 percent of their foreign currency earnings.

"We are certain of this. Converting 40 percent of foreign exchange will not hinder the ability to repay resort development loans, pay employee salaries, or cover operational expenses. That is a certainty."

He further noted that the government's sudden policy change was implemented without consulting stakeholders who have invested in the tourism sector.

However, President Muizzu stated that the government introduces legislative amendments only after extensive research and thorough consideration of all necessary factors.

"We have not overlooked any necessary considerations during the drafting or review of any of these bills. We submit them to Parliament only after conducting the required technical assessments and gathering all relevant data. Furthermore, these bills are passed only after thorough parliamentary scrutiny."

While the tourism industry has expressed concern over the government's abrupt changes to foreign exchange regulations, President Muizzu stated, "We are the ones working hardest to facilitate opportunities for businesses."