Finance Ministry says that income tax – which the Maldivian administration aims to introduce in 2020 – will apply to those who fall above the MVR 40,000 income bracket.
Speaking during the Finance Ministry Nuvagadi press briefing session this Tuesday, Tax Policy Consultant Arshad Jameel said that as per the Income Tax Bill, income tax on individuals will apply to people who earn above MVR 40,000 per month or above MVR 480,000 per annum.
He said that the Maldivian administration plans on introducing a progressive tax system – meaning the average tax rate will increase as the taxable amount or income increases.
THE TAX BRACKETS:
Finance Ministry says it expects to be able to introduce income tax within 2020, and expects to be able to generate MVR 600 million per annum from the tax.
According to Arshad, the International Monetary Fund (IMF) had advised the Maldivian administration to adopt a dual tax system and to lower the tax bracket to the MVR 10,833 income group, but that the Maldivian administration had decided on its final tax brackets after research into the local economy.
“The income-generating population of Maldives stands at 200,000. Income tax will apply to approximately 6,000 people,” said Arshad.
“For example, the salary of a Cabinet minister is MVR 66,000. As per our proposed bracket, the ministers will need to pay a tax of MVR 2,200 per month. They will pay 10 percent. The first 40,000-60,000 group will pay eight percent,” he explained.
Arshad stressed that the underlying purpose of introducing income tax is to bridge the income gap, stop unjust enrichment, and refine the national tax system.
He said the income tax will apply to both local citizens as well as expatriate workers.
“Local citizens will be taxed based both on income generated from within Maldives and abroad. Non-citizens will be taxed based solely on the income they earn from Maldives,” said Arshad.
“This is common international practice. The main purpose of this is to tax the people who generate income from abroad – but don’t pay tax to their host countries,” he explained.
Arshad said that citizens who pay tax for the income they earn from abroad to their host countries will not be taxed again in Maldives.
“Citizenship” in context of income tax is considered permanent residency in Maldives, or 183 days out of a tax year, or employees of state offices established abroad.
Meanwhile, the businesses which the income tax will apply to include businesses incorporated in Maldives, businesses which have their headquarters in Maldives with managerial control, partnerships established in Maldives and partnerships which have controls in Maldives.
The enactment and enforcement of Income Tax Bill will result in render the Business Profit Tax Act and Bank Profit Tax void, and the two taxes will be incorporated into the new legislature.
It will also result in the end of remittance tax, land sales tax and petroleum tax.
The land sales tax will be replaced by capital gain tax will be enforced under the new legislature.
INCOME TAX EXEMPTION:
While state pensions are exempt from income tax, income from tax schemes by private companies will be subject to income tax if it falls within the tax bracket.
Finance Ministry reports it will begin enforcement of income tax in 2020 based on salaries, and will begin taxing other income sources gradually.
“Others will need to pay the tax after one year,” said Arshad.