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Tax revisions: a burden to Maldives small businesses

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The original Dhivehi article was published on Avas.mv website on 21st November 2017.

The following is a loose translation:

  • GST Threshold to be eliminated
  • Revision to BPT law
  • Measures are to augment revenue

To increase revenue, the government has included necessary revisions to the tax system in the next year’s budget. The Financial Minister Ahmed Munawar has even announced it. Likewise, the most important revisions were the removal of the Registration Threshold and Report Submission Threshold from Good and Service Tax (GST). The next revision was to the Business Profit Tax (BPT) law. Question is, what are the outcomes from these revisions?

‘Even now the biggest difficulty for small businesses (especially in the outer atolls of the Maldives) rather than paying taxes, it is bookkeeping. With those revisions, the problem would arise there,’ said Hamid Sodiq CEO of FJS Consulting, who had been providing business consultancy work for many businesses.

The result of removing the Registration Threshold and the GST report submission threshold will be for all businesses having to present the GST report. Also to have to register for GST. With this revision, the government has said GST income will increase by 20%.

According to the current GST law, a business should be registered for GST, if the revenue exceeds 1 million Rufiyaa. This is the GST registration threshold. However, with the current proposed revision to the tax system, this exemption becomes void and every business needs to submit their GST tax returns next year. This revision will not be felt by the big and mid-scale businesses. But it is a great challenge felt by the small businesses.

Once this revision is implemented, small businesses will need to submit their GST tax returns. For example, if a corner shop which earns only MVR 4000 per month, it will become mandatory to register for GST and submit their tax returns. It is a mighty challenges for a small family business or a sole proprietorship. The reason is tax submission becomes on an average an expensive deed and its work is needlessly time-consuming.

An owner of a local business company said it will put a standstill to the small-scale businesses.

‘The small business don’t have the capacity to do such a work. And every island will not have a (tax) knowledgeable person. That’s why it becomes a great burden,’ the business owner said.

In connection with the GST Threshold removal, Maldives Monetary Authority’s Governor Ahmed Naseer has also given a professional opinion on the subject matter to the parliament.

In his advice, he said the businesses will take some time to adapt to the amendments made to increase the revenue and believes that it will also incur additional costs.

‘… In addition to this, before bringing such a revision, it is important to conduct a detailed analysis and understand the impact that it will cause to the economy,’ governor said.

The other challenge the small businesses will face will be not meeting the deadline period resulting in fines and penalties. It requires experience and education to compile a tax report. When small businesses do it by themselves and submit it, then the chance of getting in a legal ‘trap’ is also not less. As when the Maldives Inland Revenue Authority (MIRA) goes and checks the books, this is a likelihood.

The other amendment the government has proposed to the tax system is revising the Business Profit Tax. As per the government’s estimate, from this revision to BPT those who pay BPT will increase by 39% and subsequently, the income generated from BPT next year will be 836.8 million Rufiyaa more than the current year. Which prompts the question – how can BPT revenue be raised? What change is the government going to bring to BPT law? Are they going to reduce the BPT rate?

The current BPT is payable if a business’ annual taxable income exceeds 500,000 Rufiyaa.

According to Hamid, although he can’t tell the exact amendment to BPT, the likely revision to it could be removing the ‘threshold’ or reducing the BPT amount.

He pointed out that both of those revisions can be detrimental to small businesses.

‘Suppose, even if an employed person earns 30,000 Rufiyaa, after deducting the person’s expenses, there is no tax to pay. However, from a business if a business earns MVR 30,000, after reducing the expenses, BPT is still applicable. If this is the case, small scale businesses will face great challenges,’ Hamid said.

Nevertheless, this is inevitable, as next year these revisions will be applied. What’s next is preparing these small businesses ahead for this. It is also crucial to make a detailed analysis before implementing.

 

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