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.”