Four taxation bills sent to committee

Four bills of the government’s economic reform package were sent to a parliamentary sub-committee for further review yesterday.

The four pieces of legislation would together introduce a five percent general goods and service tax (GST), an income tax, a corporate profit tax and excise import duties for most items from January 1, 2012.

All four bills received on average higher than 50 votes from the 72 MPs present and voting. To expedite the legislative process, an 11-member sub-committee was chosen to review the bills with five MPs of the ruling Maldivian Democratic Party (MDP), three MPs of the opposition Dhivehi Rayyithunge Party (DRP), Jumhooree Party (JP) Leader Gasim Ibrahim, one MP of the minority opposition People’s Alliance (PA) and Dhuvafaru MP Mohamed Zubair as an Independent MP.

Presenting the income tax bill on behalf of the government yesterday, MP Ilyas Labeeb said that the economic reform programme was now being implemented with the introduction of direct taxation in the Maldives for the first time.

“The bill I’m presenting today is the personal income tax,” he began. “Income tax will be taken from individuals whose total monthly income from their salary or other sources exceed Rf30,000 (US$1,900). The tax will be taken from income above that amount.”

All citizens and non-citizens who earn their income in the Maldives will be eligible for the tax. For naturalised citizens and residents, income earned abroad will be taxable as well.

Ilyas explained that the income tax would be progressive and divided into five tax brackets, whereby people with higher income would pay higher rates.

The tax rates are set at three percent for monthly incomes between Rf30,000 to Rf40,000; six percent for incomes between Rf60,000 and Rf100,000; nine percent for incomes between Rf100,000 and Rf150,000; and 15 percent for Rf150,000 and higher.

The legislation specifies 15 sources of income that would be considered taxable, Ilyas continued, while Zakat funds (alms for the poor), pension contributions, interest payments and capital allowance or investment would be exempt from taxation.

Individuals would meanwhile be required to submit an annual personal income tax statement.

If passed, the income tax law will come into effect on January 1, 2012.

Ilyas observed that the introduction of a 3.5 percent tourism goods and services tax (TGST) in January this year had revealed that the country’s GDP per capita was closer to US$4,060 than the previous estimate of US$2,840.

“We learned that the Maldivian economy is such that each citizen should get close to Rf5,000 (US$300) a month,” Ilyas said. “[But] the country’s wealth is shared by disproportionately few people. One in four people do not make even Rf1,000 (US$60) a month.”

Ilyas urged opposition MPs to set aside political differences “to save future generations from indebtedness.”

As a result of deficit financing by both the current and former governments through foreign loans, printing local currency and sale of T-bills, the state is in debt to the tune of Rf18 billion (US$1.4 million).

Meanwhile at a press briefing outside parliament today, DRP Leader Ahmed Thasmeen Ali said that the party gave its MPs a free whip to vote on the taxation bills.

“We cannot make a final decision without listening to what the government has to say about reducing total state expenditure and without looking into the details of the bills, such as how the money taken from the people would be spent,” he said.

The main opposition party however decided yesterday not to impose a three-line whip on proceeding with the tax bills at the committee stage, Thasmeen said.

“Our final decision will be made after the bill is accepted based on how it is shaped in the final stages,” he explained. “We will question the government during [the committee review] process and they will not get our cooperation unless they are ready to shape the bill the way we want.”

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