Parliament passes bill to increase withholding tax on foreign contractors by 10 percent

The People's Majlis has passed a bill to increase the withholding tax levied on non-resident contractors in the Maldives.

The bill to amend the Income Tax Act, submitted on behalf of the government by Mathiveri MP Hassan Zareer, was reviewed by the Committee of the Whole House. The committee did not propose any changes to the bill during its review. During Sunday’s parliamentary session, the bill was passed with a majority of 54 members voting in favor. Only two members voted against the legislation.

The amendment proposed by MP Zareer seeks to increase the current tax rate from 5 percent to 10 percent.

Among the government's primary objectives in proposing this bill is to establish a competitive environment between foreign and local contractors within the Maldivian construction industry. Furthermore, the government 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 any additional 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 lack of subcontracting opportunities for local firms, Dr. Ahmed Shamheed, the Member of Parliament for Hulhumalé South, stated that introducing an amendment to mandate a 30 percent subcontracting quota for Maldivian contractors in foreign-led projects would significantly increase the workload available to 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 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 pro-government 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.