Ministry of Finance has announced the introduction of Income Tax would generate USD 38 million annually to the state.
Introducing Income Tax was a campaign pledge of President Ibrahim Mohamed Solih. The purpose of introducing income tax, according to the administration, is to complement the tax system, differentiate between high income and low-income earners in collecting tax, and making individuals more responsible about sources of income. The administration also expects to stop illegal trade and mitigate obtaining wealth dishonestly.
The administration plans to introduce 3 types of Income Tax: flat rate, progressive rate and dual income. Although the International Monetary Fund (IMF) has recommended to introduce dual Income Tax to Maldives, finance ministry explains the progressive rate is more appropriate in Maldives given the it is easier to enforce.
Speaking to media, Tax Policy Consultant of Ministry of Finance Arshad Jameel said a progressive Income Tax system collects a high tax from a high-income earner. The system that is also observed in other island nations including Saint Lucia and Mauritius will also allow Maldives to address the income gap between high and low income earners.
The ministry explains 5 key areas that were considered during the development of an Income Tax system. The system was designed to ensure fairness, impartiality, ease of management, cost-efficiency and a standard enforcement.
Income Tax shall be collected from residents of Maldives on income earned in Maldives and elsewhere. Individuals living in Maldives who are not residents will be charged Income Tax only based on the income earned in Maldives.
The administration has proposed Income Tax from individuals who earn more than USD 2,590. While an 8 percent of Income Tax is proposed to be charged on incomes of between USD 2,590 to USD 3,885, a 10% is to be charged from individuals who earn between 3,885 to USD 6,475. An Income Tax of 15% is to be charged from incomes of above USD 6,475.
Wages, business profit, rent from tangibles and intangibles, dividends, interest, and royalty are all eligible for income tax, according to the tax consultant.
It is expected about 6,000 people are eligible to pay Income Tax. The administration also expects to earn an extra USD 38 million in Income Tax. Remittance Tax, Land Sales Tax, Business Profit Tax, Bank Profit Tax and Petroleum Tax will become obsolete with the introduction of Income Tax.
The administration intends to introduce income tax in 2020 following an approval from the parliament this year.