The Parliament on Wednesday approved to introduce Income Tax.
According to the original bill submitted by the government, income tax will be imposed on those earning over MVR 40,000 per month. The Finance Ministry prepared the budget for 2020 including the estimated revenue from income tax imposed on those earning above MVR 40,000. However, main ruling Maldivian Democratic Party (MDP)'s Agenda 19 manifesto proposed a tax threshold of MVR 60,000.
While the bill initially said income tax will be charged on the income earned that exceeds MVR 40,000, the committee reviewing the bill increased the tax brackets and decreased the tax rate imposed. However, the committee later approved to impose income tax on those earning above MVR 60,000 per month. While it was previously planned to impose a tax rate of 8% on the MVR 40,000 - 60,000 bracket, no tax will be imposed on those earning below MVR 60,000 in a month. Instead, a tax rate of 5.5% will be applied on those earning between MVR 60,000 - 100,000 as opposed to the 10% as previously proposed.
According to the original bill, if a person earns above MVR 100,000 in a month, 15% must be paid as income tax. With the new changes to the bill, 8% will be imposed on those earning between MVR 100,000 - 150,000 and 12% on those earning between MVR 150,000 - 200,000.
The bill proposed by the government was approved by the parliament after 26 amendments were brought to the bill. 67 members voted in favour of the bill while three voted against it.
Despite concern from MDP members, the bill was passed to include tax applied on dividends.
According to the tax bill, only those earning large salaries and foreign investors will have to pay tax on dividends. This means an investor who pays income tax on his personal income will still need to pay tax on dividends.
The Finance Ministry previously estimated a yearly revenue of MVR 680 million from income tax. However, this figure is likely to be affected with the increase in tax threshold.
