The government has submitted a significant amendment to the Income Tax Act aimed at doubling the withholding tax imposed on foreign contractors involved in local construction projects.
The bill, introduced to Parliament by Mathiveri MP Hassan Zareer on behalf of the administration, proposes increasing the tax rate from the current 5 percent to 10 percent.
The primary objective of the amendment is to establish a more competitive and fair environment for Maldivian businesses. By increasing the tax burden on non-resident contractors, the government seeks to ensure that local firms can compete on equal footing during the bidding process for major construction contracts.
Under the proposed changes, the 10 percent deducted from payments made to non-resident contractors will be considered the final tax payment for that specific income. The amendment further specifies that such income will no longer be included when calculating the party's general taxable income, simplifying the tax process while ensuring the state captures its due share.
According to financial projections submitted alongside the bill, the Maldives Inland Revenue Authority (MIRA) estimates that the tax hike will generate an average of USD 16.3 million in additional annual state revenue.
The proposal has received strong support from lawmakers during the preliminary debate. Velidhoo MP Mohamed Abbas highlighted that the move is crucial for the survival of small and medium-sized enterprises (SMEs).
"These are the necessary amendments—providing opportunities for Maldivian entrepreneurs and reviving small and medium enterprises," he said, noting that local contractors have long struggled against foreign entities that do not operate under the same financial constraints.
Echoing these sentiments, Ihavandhoo MP Ahmed Naseer said that the change is part of a broader strategy to rectify the economic negligence of previous administrations. While he cautioned that the full benefits—including increased dollar inflows—might take two to four years to fully manifest, he emphasised that the bill paves the way for equal opportunity.
Fuvahmulah South MP Ibrahim Hussain added that the current system, which allows foreign contractors to operate with minimal tax contributions, is unsustainable for a developing nation.
"Otherwise, what we will witness is the impoverishment of Maldivians," he warned, stressing that the bill is a vital step toward a fairer domestic business framework.