The Rule of Law in the Maldives and the Tax Regime’S Contribution to Its Failure
Total Page:16
File Type:pdf, Size:1020Kb
THE RULE OF LAW IN THE MALDIVES AND THE TAX REGIME’S CONTRIBUTION TO ITS FAILURE ____________________________________________________________ A thesis submitted in fulfilment of the requirements for the Degree of Master of Laws University of Canterbury by Kevin Holmes 2018 _______________________________________________________________ Word count: 59,875 2 ACKNOWLEDGEMENTS I wish to thank those people who contributed directly and indirectly to my work on this thesis. In particular, I want to thank my supervisors, Professor Adrian Sawyer and Associate Professor Andrew Maples, for their time, direction and perceptive comments and suggestions as I progressed through this work. On 11 October 2017, I presented an overview of the thesis at a seminar held at the University of Canterbury. I am grateful to the participants who attended that seminar for their challenging and encouraging remarks and ideas about avenues of investigation. Special thanks must also go to Elly Holmes for her administrative assistance in compiling the final product, and for her tolerance while I worked on it. In spite of all of the foregoing support, of course I am solely responsible for the content of this thesis. 3 PREFACE This thesis was inspired by my work as an international tax adviser to the Maldives on behalf of the Asian Development Bank from 2011 to 2015. The Maldives had just transitioned from what was an autocracy to a supposed democracy, and from a tax haven to a country with new direct and indirect tax regimes. During that period, I regularly witnessed Legislative, Executive and Judicial manoeuvres that were the antithesis of what I had always taken for granted in New Zealand as fair treatment of people in accordance of the rule of law. I observed the contradictions both generally in Maldivian society and in the taxation field. I began to question why there was a stark contrast between what I was observing in the Maldives and the ideals of a fair and equitable society, which my New Zealand upbringing, education and experience had instilled in me. This thesis is therefore the outcome of a study of what the rule of law is supposed to be and whether, because the Maldives is a small, conservative Islamic state, its religion and culture explain, and even justify, the behaviour of the three branches of the State. That led to a review of Islamic notions akin to the Western perception of the rule of law. The structure of the thesis is as follows: Chapter 1 offers a general introduction to the objective and design of the thesis. Chapter 2 gives a background to the unique geography, history, cultural features and economy of the Maldives. It also introduces the two principal taxes on which the analysis of application of the rule of law in the taxation field focuses. Chapter 3 draws on the literature and jurisprudence to discuss various interpretations of the rule of law. It identifies six main elements of the rule of law as a benchmark to assess the level of compliance with the rule of law in the Maldives generally and in the sphere of taxation legislation and administrative practice. Chapter 3 also examines principles analogous to the rule 4 of law that can be found in Islamic shari’ah and arrives at some conclusions about the compatibility of the two. Chapter 4 surveys some key instances of disrespect for the rule of law at the Legislative, Executive and Judicial levels of governance generally in the Maldives, while Chapter 5 looks at conflicts with the rule of law in the same branches of the State with particular reference to tax law and practice. This is where the main analytical focus lies. Chapter 6 concludes with some comments about the state of the rule of law in the tax arena, in the light of the general state of the rule of law in the Maldives during the period under review. Chapter 6 also offers some recommendations on improvements in the way the rule of law could be applied in the Maldives if the country is to achieve its aspirations of a truly democratic Islamic state. Kevin Holmes September 2018 5 ABSTRACT The thesis comprises an examination of the application of rule of law principles in the nascent democracy of an Islamic developing country – the Maldives – with a particular focus on the design and application of the country’s newly-enacted tax legislation. The benchmark against which that investigation is undertaken is the features of the rule of law enunciated in the literature and jurisprudence in developed Western countries and parallel notions in Islamic jurisdictions. The study concludes that, contrary to the fundamental tenets of Islam, which the Maldives embraces, application of the rule of law generally has failed. The way in which the tax regime was established and is administered has contributed to that failure. This research demonstrates the need for a seismic change in the mindset of those people in the Maldives who draft, enact, administer and adjudicate taxation legislation and other laws. Consequently, the thesis offers some recommendations on how a more focussed recognition and application of the rule of law might be achieved in the tax arena and more generally in the Maldives. 6 TABLE OF CONTENTS List of Abbreviations ..................................................................................................... 10 Chapter 1 – Introduction ............................................................................................. 11 1.1 Exordium ................................................................................................................ 11 1.2 Genesis of the thesis .............................................................................................. 17 1.3 Why the Maldives? ............................................................................................... 18 1.4 Why the period 2010–2017? ................................................................................ 19 1.5 Research methodology ......................................................................................... 19 1.6 General approach ................................................................................................. 20 Chapter 2 – The Maldives .......................................................................................... 22 2.1 Background ........................................................................................................... 22 2.1.1 Geography and demographics ..................................................................... 23 2.2 Early history and religion .................................................................................... 25 2.3 Modern history and politics ................................................................................. 27 2.3.1 From Portugal to Britain .............................................................................. 27 2.3.2 Constitutional reform ................................................................................... 28 2.3.3 The Gayoom era ........................................................................................... 29 2.3.4 Democratic upheaval .................................................................................... 31 2.4 Cultural and familial features ............................................................................. 33 2.5 The Maldives economy ......................................................................................... 35 2.5.1. Major economic developments .................................................................... 35 2.5.2 Government revenue ……………………................................................... 37 2.5.2.1 Goods and services tax ................................................................. 38 2.5.2.2 Business profits tax ....................................................................... 38 2.6 Summary ............................................................................................................... 38 Chapter 3 – The “Rule of Law” ............................................................................... 40 3.1 Introduction .......................................................................................................... 40 3.2 Interpretations of the “rule of law” .................................................................... 45 3.2.1 Supremacy of the law ................................................................................... 49 3.2.1.1 Liberalist philosophy .................................................................... 53 3.2.1.2 Formal legality ............................................................................ 54 3.2.1.3 Natural law ................................................................................... 57 3.2.2 Separation of powers and judicial independence ........................................ 60 3.2.3 Equal application of the law ......................................................................... 62 3.2.3.1 Discretionary powers .................................................................... 64 7 3.2.4 Accessibility, intelligibility and predictability ............................................. 65 3.2.5 Judicial dispute resolution mechanism and due process .............................. 66 3.2.6 Judicial impartiality ...................................................................................... 68 3.3 Principles analogous to the rule of law under Islamic shari’ah ....................... 70 3.3.1 Supremacy of the law ................................................................................... 74 3.3.2