The opposition Dhivehi Rayyithunge Party (DRP) launched “a special campaign” yesterday against the introduction of a personal income tax in the Maldives.
Speaking at a press conference at private broadcaster DhiTV, DRP Leader Ahmed Thasmeen Ali said that “the purpose of our campaign is to undertake efforts to inform citizens as broadly as possible of the effect of [the introduction of income tax].”
“Considering the state of the country today, economic growth has been considerably stalled,” he said. “The base for income tax – the tax base – is very small. If you look at the tax brackets, the number of people who have to pay income tax is very low. This is because our development has not reached that level and most citizens are not wealthy. This is something we have to consider before introducing such a tax.”
The consequences of levying a personal income tax under the prevailing economic circumstances would be reduced investment, slowed economic growth and worsening unemployment, Thasmeen argued.
As the number of people who earn Rf150,000 (US$9,700) a month are quite few, said Thasmeen, an additional tax burden would discourage them from investing and incentivise down-sizing or cost-cutting measures, such as layoffs, in their businesses.
In August, the party issued a booklet titled “DRP’s response to the government’s economic nuisance package” noting that all citizens would have to file tax returns.
“The charts of the government’s fiscal and economic nuisance package show Rf300 million will be received in 2012 from income taxes and 475 million in 2013,” it reads. “Instead of making all citizens file tax returns in order to earn 475 million two years after taxes are introduced, it would be far better to reduce the government’s useless expenditure by that amount.”
Thasmeen meanwhile asserted that administrative costs for collecting the income tax would be prohibitive: “MIRA [Maldives Inland Revenue Authority] has not revealed the figures yet, but we believe that will be a surprisingly high amount,” he said.
Following a meeting with Thasmeen in August to discuss the government’s economic reform bills currently before parliament, President Mohamed Nasheed told press that the minority leader of parliament had expressed concern with the personal income tax.
While the government was open to suggestions of lowering or reviewing the proposed tax rates, Nasheed said at the press conference following the meeting that financial experts had advised the government that an income tax was necessary for the tax regime to function as a whole.
Presenting the draft income tax legislation to parliament on July 18, MP Ilyas Labeeb of the ruling Maldivian Democratic Party (MDP) said that the purpose of the economic reform package was shifting away from custom duties in favour of direct taxation in the Maldives for the first time.
“Income tax will be taken from individuals whose total monthly income from their salary or other sources exceed Rf30,000 (US$1,900),” Labeeb explained. “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.”