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.
Progressive taxation
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.”
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It seems Thasmeen and his DRP is now the party for the rich and greedy.
He is bowing to the pressure from greedy MPs like Gasim and his family members who have looted Maldives and now won't even give 3% back for government services.
The opposition always find something to hate. They sometimes see gold as coal. We should know abolishing import duty and Taxing the rich is a more better solution than the previous hidden tax regime.
"naturalised citizens and residents, income earned abroad will be taxable as well"
First off, what naturalized citizens? We don't have a mechanism in this country for naturalization. We don't even have a mechanism for residency, outside of work permits.
And taxing them on income earned abroad just doesn't make sense if we want to attract investors. Or skilled labor. It just doesn't make economic sense.
If you take the UK as an example, you'd find that even they don't tax foreign nationals residing in the UK on income earned abroad, unless that income is brought into the country. This is one of the reasons that the UK has more foreign (nationality) billionaires than any other.
Also, in regard to the same issue, has there been any consideration for double taxation?
And as far as taxation goes, are we to be taxed based on total income or net income? Cos you could make 30, even 50 thousand and still have costs that leave you with less than a quarter of what you earned.
I like the idea of taxation, I really do. I believe we need to implement it sooner rather than later. But maybe the government should take things at a slower pace, given the fact that most people in the country, especially from the islands, don't understand taxation and it's implications fully.
Maybe Jan 2012 is a little too soon. How about 2013, given a little more time for people to be educated about this, and let the nation have time to adjust to becoming a modernized tax based economy.
Ziyd!! How about waiting till year 2030? Cox then we can all get bankrupt!! Majority of this country is greedy and illogical!! How can any government run a state which has new democratic institutions without additional revenues? Unless DRP and so called PPM wants dictatorship!! Most majlis members are greedy b@@@@s! Some political people in government wants to reap all they can while in power! Opposition wants to distroy the state to come to power!! Judical can be bought for a bankok girl with business class tickets twice a year with $500. Most citizens can be bought in exchange for votes for few material gains which is short term, like a Colombo ticket!! What a hopeless situation!!
@Nutcase
All the things you said have substance, albeit I'm slightly unwilling to accuse people left and right. My point here isn't to wait for the sake of waiting, nor is it to wait for political reasons. Quite frankly, I don't give a rat's arse about the political status quo between the parties. My point is to pace things when implementing large scale changes like VAT and personal income taxes, in order to have more measurable success. What's the point of implementing a tax regime for the sake of saying that it's been implemented, if the regime won't have measurable success? We're not talking about just people like Gasim or Thasmeen or Champa or the rest of the fat-cats having to file tax returns. It's about all of us having to file it, even if we are not liable for taxation. It's also about mostly the common man being under the risk of failing to file their tax returns and therefore facing the legal consequences of such a failure. Without education and awareness about all this, Jan 2012 is looking rather too soon. The GST started today, and yet it's a fact that there are loads of businesses who are still not ready for it. That's just a start; wait till everyone in this country has to file their financial information.
“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.”
Consider what? That the people earning Rf30,000 might find it difficult to pay Rf900?
The policy of the opposition is to discredit the govt in anyway possible, underming any action which would benefit the people- anything to make the govt look bad.
I would like to know if this govt can put forward a policy, any policy which these people would NOT oppose. Pathetic.
@Peasant
I agree with you that the opposition, be it DRP or DQP, has never been objective about any proposals made by the government, save when it came to their own wants and needs in the political arena. Protesting for the sake of protesting isn't what we need.
The GST law came into effect today. So far, all of today, I've only been charged something like 20 rufiyaa as GST, from expenditure of almost a thousand. But that's not cos it's minimal (which it actually is, despite all the protestations), only cos not all the businesses have established the charge of GST yet, despite all the assurances that the government put forward in regard to businesses having enough time to implement the GST.
This is a case in point for my earlier argument, that personal income tax might be coming into force too soon, especially on the heels of the GST. Unless of cos MIRA doesn't require everyone to fill their financial information, which might make the Jan 2012 timeframe more plausible. Somehow, I doubt that that's whats going to happen.
http://www.haveeru.com.mv/video/305
Please listen to this video on Haveeru by Thasmeen on taxation talking utter rubbish - he is going on and on about the difficulty in implementing taxation without any solid facts while avoiding the the real issue - the necessity of taxation and income disparity.
He talks surround himself with some ambitious boys with fresh faces as if to give the message legitimacy. He seems to think Maldivains are stupid. Please pay up your loans first.
I think a lot of us engaging in modern discourse in the Maldives are closet-Communists 😛
Thasmeen is a politician and what every politician says is weighted down by their bias. However there is some objective truth in there as well.
VAT SHOULD have been paced better. Income tax does carry the risk of decreasing investment. GST is a tax on consumption - do we need to decrease consumption at this stage?
BPT and tourism tax seems fine for now. However the gaping holes in public expenditure are starving pits with no bottom in sight 😀
The tax basis in Maldives the way it is now would kill a lot of people. Income tax is not done the way it is done in Maldives.
No one gets taxed on the whole income in other countries. One gets taxed on part of his income. Then there are tax credits for medical expenses, for the number of children, and even for things like physiotherapy.
Take this case. Lots of Maldivians have taken loans from the Bank and are paying back these loans after building their houses. Now they are going to get taxed from all the rent they get. However most of these rent goes back to the bank for the repayment of the loan. How are they going to pay 15% interest plus tax on these loans? No way.
They are all going to get bankrupt.
Maldives does not need to tax people if successive governments managed the economy well. We are a people of 400,000 people and the income the country generates is more than enough for Maldivians to live a comfortable life if the Governments get a good fiscal plan. However they spend too much on ridiculous things and of course there are far too many foreign workers in Maldives.
Manage the foreign workers and the economy well and we need no taxation at all.
For once DRP is right.
No sane economist would increase tax when the economy is in such a bad state. Taxation would be reduced to regenerate the economy.
It took as little as 3 years to utterly destroy an economy that took 30 years to build. Very well done, Mohamed Nasheed.
I have yet to meet a foreign - especially from the UK - journalist who doesn't have the notion that Maumoon Abdul Gayyoom was a dictator hell-bent on personal gains.
Take a look at the varied parliamentarians and the immense amounts of state funds that have already been siphoned off in the last three years.
If you call Gayyoom a murderer and torturer, take a look at the increased gang violence and murders that happen in broad daylight in the Maldives.
Sure, go ahead and tax us. We are currently paying the blanket taxation on everything that is imported into the country, the Goods and Services Tax, the fuel surcharge imposed by the electricity company and so on and so forth from our meager salaries that were slashed within 6 months of Nasheed coming to power.
Yet the parliament has the supreme audacity to actually suggest an allowance of Rf.20,000 to deter corruption among parliamentarians.
Someone commented above talking about the Maldives being a closeted communist country, and I feel that's all too real.
There will be a point when this country collapses too, just like the Soviet Union.
Yet, it is amazing how blind the world, including most Maldivians are as to what kind of an unmitigated disaster Nasheed has caused.
Who exactly among the readers here understand the plight of those who are not eligible to receive the "Government Subsidy", who have no jobs and yet have to pay rent because they have no where else to live?
I personally know the frustration that people go through, and now it's like a repeat of the years leading upto 2008, when the people of the Maldives are goaded into doing whatever it takes to replace the government.
Impeach Mohamed Nasheed Now.