The Maldives Inland Revenue Authority (MIRA) has taken a door-to-door approach in trying to prepare Maldivian enterprises for the introduction of a new Business Profit Tax (BPT) that comes into effect on July 18. MIRA says informing and registering every national enterprise in the country under the scheme will be a considerable challenge.
The BPT is to be charged to all businesses operating in the Maldives,that makes a profit of more then Rf500,000 (US $32,425). The tax will be a first for companies operating in the Maldives, a country that launched a similar 3.5 percent Tourism Goods and Services Tax on all travel industry income as of January 1 this year.
Business owners and industry representatives, while said to generally welcome direct revenue in the country, have called for a gradual introduction of financial reforms like the BPT, which are being sought by the government to balance national budget deficits and protect smaller enterprises.
Under the present BPT system, businesses that make a profit of more than Rf500,000 (US$32,425) will be asked to pay 15 percent of their earnings to the state. This sum will effectively rule out small businesses operated by individuals and places like corner shops that mainly caters to the local residents from having to pay BPT.
Moomina Abdul Sattar, 49, who runs a small tailor service, is one such businesswoman.
“I don’t have to pay the BPT tax; it is applicable only for those who make a profit of more than Mrf 30,000 (US $ 1945) a month,” she said.
Sattar added that she had previously attended an information session held by MIRA and was not therefore concerned about the tax as it does not affect her operations.
“My income per month is around Mrf 15,000 (US $ 973), from this I have to pay the salary of my three tailors,” she said.
Nonetheless, Sattar added that she still wasn’t aware that registration of her business was required by MIRA, even after attending the meeting.
For other businesses in the country, beyond the registration process itself, BPT is still expected to provide a significant challenge, at least in the short-term.
“We are not fully ready for BPT, but we are taking it positively,” said Ibrahim Hameez, Managing Director of Ryan Pvt Ltd. A design consultancy firm, Ryan has about 40 employees and would be seen as a medium and growing business.
“A lot of things that affect businesses were introduced this year, pension scheme, BPT, Income tax,” he said.
Hameez added that it was the timing of the introduction of taxes that posed a problem. “If we had known one year in advance, it would have been better. At the end of last year, we had not foreseen and planned for all these expenses in our cash flow for this year.”
The BPT Act was published in the government Gazette on 18th January, with the tax to come into effect 6 months from the date of publication.
Despite the problem of timing Hameez believes taxation is a good thing. “BPT is going to be tough to adjust to, but we can and we will.”
Business of all sizes
As part of the act’s requirements, businesses of all sizes, including small and medium enterpises have to be registered with MIRA. This is a first for the Maldives, where small businesses run from home have generally not had to register themselves in the country.
MIRA says they are having great success in their door to door campaign to spread awareness.
“The response from the public has exceeded our expectations, people are very cooperative and even fill up the forms for registration on the spot most of the time” said Fathimath Rasheeda, Director of Tax Payer Education and Facilities for MIRA.
Landlords had also previously been exempt from having to register their operations or interests. It is these type of earners that Rasheeda has said have been the target audience for its door-to-door campaign.
“As a society we don’t tend to think that renting places, giving tuition, or selling sliced arecanuts are doing businesses,” she said.
Until this month, individuals or partnerships running small businesses like making short eats or cakes from their homes had only been required to get permission from the Ministry of Health to operate. Similarly, anyone renting accommodation, no matter the size, had not been required to register their property unless the place in question was to be used as a shop.
“Even a person renting out one room for Mrf 2000 (US $130) or teaching a small Quran class should register. But we will be taxing only those who earn more than 500,000 (US $ 32425) annually as profit,” said Rasheeda.
Challenges and Penalties
Alongside businesses, MIRA also has its own concerns over such a large scale operation being conducted for the first time.
“This is a big challenge for us also, as this is the first time a lot of businesses in Maldives would be registered,” she said.
MIRA’s 70 staff will be participating in an awareness campaign set for next Saturday. While next week the campaign will be taken to the islands.
“Due to lack of resources we cannot cover all the islands, but the city and island councils have been very helpful and have helped register the businesses in the islands,” Rasheeda added.
Among the challenges faced by MIRA will be taxing businesses that had never before declared their revenues publicly.
In addressing this potential difficulty, Rasheeda added that the BPT would operate like taxation systems in most other countries, where “individuals and businesses have to declare on their own the profits they make.”
The audit department of MIRA is expected to conduct a risk analysis to prioritize the first businesses it will audit to ensure the system is being adhered to.
“We hope to audit all the businesses within a five year period. Those businesses and individuals eligible to pay taxes will be asked to file a tax return annually,” Rasheeda added.
The penalties for enterprises omitting or filing false tax returns will include fines of up to Rf100,000 (US$6,485), six months to two years of house arrest and imprisonment or banishment, as per the BPT act. Rasheeda added that “if businesses or individuals fail to pay their taxes, aside from the wide ranging penalties, we can also seize their property in order to get the amount owed to the authority.”
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I sincerely hope that MIRA will not be case like human resource ministry and department of immigration.
@hassan ahmed on Thu, 7th Jul 2011 10:25 PM
That's a bold wish. But unfortunately, there are no signs that MIRA can be managed and administered with the current staff. There is no difference between MIRA staff and Health Ministry's staff or the Immigration staff.
Very likely MIRA will fall over very soon.
Even if it proves successful, the gathered funding would only be used to pay yet another set of politicians and their allowances.
I do wish, the whole infrastructure would be looked at and those gaping holes plugged at the same time.
The tyranical, dehumanizing vultures of this world expect us to be patient with them.
There are no excuses for prolonging the cause of humanity.
I am sick of the way the Maldivian people have been lulled into being patient, by so many factors, there are no excuses. I have closely observed the superstructure of Maldivian society, particularly the way the religion had been used, for generations to 'sedate' the Dhivehin into accepting injustice in the hope that a greater reward will be offered in the after life.
I have experienced the hypnotic tranquility of reciting verse after verse of Arabic without even understanding it, of being told in the Mosques that as Muslims we are all one and must love each other, making it feel like a sin to stand up for your rights, the aspect of Maldivian society which makes you feel like an uncivilized animal for expressing anger publically, the social structure is something lile a massive sedative, an opiate.
The Islamic ideology of Maldives had been modified, utilized, controlled by the serene, opioid transmitting voice of Maumoon Abdul-Gayoom, who merely served the agenda of the business classes where his wealth comes from, and to this day, many Maldivians are still in the induced state of impotent bliss the culture has placed on you guys.
Seriously, awake and taste reality, it is a battle, it is pain, awake and struggle.
Don't accept anything less than full justice, and don't be lulled into accepting second rate workers rights by any ideology which seems like socialism but is in fact, a minimal amount of justice to maintain the status quo, but not enough justice (like a Muslim version of Rerum Novarum... The Papal encyclical which supposedly promotes worker's rights yet is so full of appeals to love and forgiveness the effect of reading it sedates one rather than inspires one...)
Throughout our history rulers (kings and queens) were only interested to have good time themselves.
History tell us that a certain king sold the Maldivian economy for hundred thousand Victorian silver rupees to pay as dowry for his marriage with a Turkish woman.
No one objected to that; the reason are people in general were happy since they had freedom on certain things. For example sex was free and drug, in particular opium free anyone who needed a dose goes to government shop can buy it freely.
During this period the Mullahs did not object to use of opium since only intoxicating liquid is forbidden in holy book.
True Maldivian read Quran often, do you know why? Just to get a good place in high heavens with lot of nymph. I asked my mom the day what she will get in haven after death since good god-fearing men get lot of nymphs as they desire.
Ben.
is socialism the right system?
Pen@ Socialism has failed miserably throughout the world.
See the Eastern Block.
I think capitalism is the best, cause it is only my way of thinking.
@pen... You are one mysterious character. Interesting questions. Like Socrates, they prompt me into eventually telling myself what you are trying to tell me, is that correct?
Anyway happy to oblige...
So I did say socialism, but...
What I envisaged was not full socialism (where the state, as the projection of the 'power of the people' owns the means of production) but rather I meant a little bit of socialization of the economy.
I was anxious that the working classes have the unity, strength and will to take a stand against the owners of the means of production in a forceful enough, prolonged enough manner to secure full rights and an adequate income to pay for their families health, livelihood, and a little saving in case of emergency (if they have to be rushed to Sri-Lanka for medical treatement for example.)
Yet due to human nature being what it is, it is fanciful of me to imagine that without the profit motive that enough wealth could be generated to secure the welfare of all within a society.
This thinking constitues what may be described as social liberalism rather than full socialism.
What I had in mind was a vision of a society where business people's motives are routed, ultimately, in social service, so that even the profit motive may be channelled towards a social cause.
As far as socialism is concerned, if understood as total state tyranny over the minds and business of the people, I reject it.
Yet, the state should help look after the welfare of the poorest and help advance humane causes.
I think, the aspect of socialism which rejects religion is wrong also, because, religion can be either an opiate of the masses or a vitamin for the poor, it depends who interprets it, who controls it and why it is used.
For me, the essence of religion, both Islam and Christianity (and I have studied both) if separated from the subjective, divise power elements, is the well being of humanity.
Yet I do not believe that the state should control religion, BUT that is a wholey different question.
@Ben, what's religion got to do with this article?
@Lathifa: ALOT. ALOT. Because, the way an economy works is impacted by the religious thinking. Religion, culture, economy, politics all influence each other.
The basis of the term political economy, a study in itself, is about this. If Marx were only talking about economics, why did he comment so much on religion? Why was Adam Smith's first major work a work about religious sentiment, and the symbolism he used ]invisible hand...' an anthropomorphic religious metaphor? Why, according to the many Milton Friedman essay's I have read, was the ultimate reason for his economic view point routed in his Jewish history?
My initial point was about the way the greedy wish to prolong the paying of taxes, which was a part of what this article was about. Then, it got me thinking about the ways the greedy have continued to get away with injustice, lead to religion.
What one believes about the ontological essence of being helps determine the society, and the economy they create, it happens at a very deep, subconscious level.
Marx called it 'false conscioussness...'
The economy (the infrastructure) helps determine and is determined by the super structure (the system's of thought, belief, culture...)
No I am not a Marxist yet I have learnt a lot of truth from reading him.
I have observed many aspects of Maldivian thinking about economics, work, many things, which are, ultimately, routed in the folk-Islam of the Maldivian mind, YET it is sometimes not a direct relationship but very indirect. I suspect most would not even see the connection.
Latifa@ Religion has nothing to do with this article; certainly this article has everything to do with narrow minded Maldivians.
Maldivian Muslims wholeheartedly believe that they only are in correct path and the rest are heathens and will go to hell.
To be honest this is a creepy way of thinking and who the hell knows if there is a heaven!
I wonder what the tax evasion rate would be, given the lax enforcement of existing regulations. The courts which are in place to arbitrate simply scream out to businesses to report a profit of Rf 499,999 and keep the rest under different layers of accounting fuddle.
I for one would take issue with any local business which doesn't do this- unlike for foreign managed firms, by cheating, locals don't have much to lose and a lot to gain in our dog eat dog society.
Civilization came about when society decided that bandits within would not be tolerated. We can't say we're headed in the right direction when bandits who flaunt the rules openly, and the have-nots in our society not only accept this, but aspire to this lifestyle. The youth are incapable of dreaming beyond getting their slice of the existing ever shrinking cake, rather than baking a new one.
In the Maldives, sadly playing by the rules is a sign of weakness, incompetence, cowardice or even stupidity.
Economic for the whole country success will come only after an epochal paradigm shift within the whole society. We could start by queuing properly, saying, "thank you" or "I'm sorry", or smiling at a stranger.....maybe our childrens' generation will inherit a govt. which is functioning, and society which is just...justice, the aim of taxation.
In the beginning there will be lot of problem and a lot of cheatings and tax evasions will be there.
Government knows about the sort comes and eventually like other countries they will introduce government approved cash registers. They eventually will make policing by creating an income tax department or a financial police department.
A regime aiming to tax the rich to feed the poor with an introductory rate of 15% on business profit will see the end of medium scale businesses in the Maldives. The medium enterprises who can claim lower than Mrf 500,000 will play with their books to ensure they arent taxed, whilst the larger companies who cannot make such a claim will pay the 15% profit tax, and find ways not to pay the 15% tax on income which is due after dividends are paid. One scenario that we may see in time to come is larger businesses registering in countries like Hong Kong where income received from abroad is not taxed in order to save 15% income tax from the Maldives.
Of course I know that this article is about economics, and for clarity, I should have stuck to THAT. I am aware that if I did not stick to the subject at hand in an academic setting (if we were asked to talk or write economics, and I spoke about religion instead) I would surely fail because for clarity's sake academic discourse must be confined within the boundaries of its own discipline...
However, I am not in that setting, at least not right no. I think, what is needed for change is, amongst many other things, an understanding of the holistic dimension of change.
The environment, the resource availability, the geography, the population, the education, the economy, the religion, the genetics, the culture, the politics all influence each other. I don't think there is any first cause here. I am not, as early Marxists were, an economic determinist, or as some fundamentalist religious are, an ideological determinist, the relationship between these things is not causal or singularly deterministic. Rather, it is, holistic. Each has to mbe developed for justice and peace to be realized.
Maldivians are masters of all trades jack on none.
Divehi word “ROANUEDHURU”
@Hassan Ahmed: Roanuedheru? I read that as 'rope teacher???' For the likes of Jahili like me hplease help me out with that one Brother I am sooooooo ignorant, what does it mean?
M Jaleel: From what I read, it is only when profits are so much that they are taxed. If those huge profit margins were poured back into the Maldivian economy through either fair wages or expansion to employ more Maldivians or through loans to help Maldivians, it is obvious that this issue would not be being pushed for. These super profits are normally spent overseas on waste from what I have seen, so this is the only way to keep Maldivian wealth inside the Maldives. (Oh: THAT is IF the tax is spent on the right causes, please also ensure a structure of accountability of public funds...)
We all have this trait. The 'I know best' attitude. Some more that others, but Maldivians, for sure were on the front line when this trait was handed out.
A quote that i was reminded of : "Never argue with an idiot; they will bring you down to their level & beat you with experience".
So why bother?
its a total disgrace - laughable. Nasheed instead of being 'austere' and actually cutting his gross bloated costs has decided 'let's not bother with that - lt's tax everyone so I can continue to employ half the country doing jack and at the same time bring in hundreds of thousands of migrant workers to do our jobs for us' - you have to laugh until actually you begin to cry. Good luck loser!!