Bill to increase withholding tax on foreign contractors to 10 percent accepted

The People's Majlis has accepted a bill proposing an increase in the withholding tax rate levied on non-resident contractors in the Maldives.

The People's Majlis passed the bill during Monday's sitting with a majority of 64 members in attendance voting in favor. Only one member voted against accepting the bill. Following the vote, the legislation was referred to the Committee of the Whole House for further review.

The amendment to the Income Tax Act, submitted on behalf of the government by Mathiveri MP Hassan Zareer, proposes to increase the current tax rate from 5 percent to 10 percent.

Among the government's additional objectives for introducing this bill is the establishment of a competitive environment between foreign and local contractors within the Maldivian construction industry. Furthermore, it is stated that these amendments will enhance opportunities for local businesses to secure projects.

However, members of the opposition MDP argue that simply increasing the withholding tax from 5 percent to 10 percent will not provide Maldivian businesses with further opportunities to undertake projects.

Debating the bill, Vaikaradhoo MP Hussain Ziyad noted that the stated objective of the legislation is to prioritize opportunities for Maldivians. However, he pointed out that while the Fushidhiggaru project is currently the largest undertaking in the country—and despite claims that the land reclamation is being managed by MACL—the actual work is being carried out entirely by foreign entities. Furthermore, he highlighted that the government is now awarding contracts for the development of local youth centers to Chinese companies.

Expressing concern over the exclusion of local businesses from major projects, Dr. Ahmed Shamheed, Member of Parliament for the Hulhumalé South constituency, stated that introducing an amendment to mandate a 30 percent subcontracting quota for Maldivian contractors in foreign-led projects would significantly increase opportunities for local companies.

MP Shamheed stated that the government exempts foreign companies from paying import duties on excavators and other machinery. However, the MP noted that local Maldivian companies are still being required to pay duties on the import of such equipment.

The government estimates that the proposed tax hikes will generate an additional MVR 251 million in state revenue. However, Ahmed Naseer, the government-aligned Member of Parliament for the Ihavandhoo constituency, stated that the positive impact of these legislative changes will only be realized in three to four years.