The government has proposed doubling the withholding tax charged on foreign contractors carrying out construction projects in the Maldives, with the rate set to rise from five percent to 10 percent under a proposed amendment to the Income Tax Act.
The bill was submitted to Parliament on behalf of the administration by Mathiveri MP Hassan Zareer.
The proposed increase is intended to create a more level playing field for Maldivian companies competing for major construction projects. By raising the tax obligation of non-resident contractors, the government aims to strengthen the competitiveness of local businesses during the tendering process.
Under the proposed amendment, the 10 percent withholding tax deducted from payments to foreign contractors would constitute the final tax payable on that income. Such earnings would also be excluded from the calculation of the contractor’s overall taxable income, allowing the tax to be settled through the withholding mechanism.
Financial estimates accompanying the bill indicate that the Maldives Inland Revenue Authority expects the proposed measure to increase government revenue by an average of USD 16.3 million each year.
The proposal has received backing from several lawmakers during its initial parliamentary debate.
Velidhoo MP Mohamed Abbas said the amendment would help create greater opportunities for Maldivian entrepreneurs and provide much-needed support to small and medium-sized enterprises, which have faced difficulties competing with foreign contractors.
Ihavandhoo MP Ahmed Naseer also supported the proposal, describing it as part of wider efforts to address economic shortcomings inherited from previous administrations. He noted, however, that the broader economic impact, including potential increases in foreign currency inflows, could take between two and four years to become fully evident.
Fuvahmulah South MP Ibrahim Hussain said the existing tax arrangements for foreign contractors, which allow them to undertake major projects while contributing relatively little in taxes, cannot be sustained as the Maldives continues to develop.
He warned that failing to address the imbalance could negatively affect Maldivian businesses and livelihoods, while stressing that the proposed amendment would help establish a fairer environment for domestic companies.
