Debate around Income Tax attracts favorable alternatives

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Photo: Avas Online

One of the prominent promises of the current government is the imposition of Income Tax throughout the country. Many notable businesses support the implementation of the tax, with a few having some understandable questions on the extent of the system’s efficiency and the potential short run negatives businesses may face after the Income Tax is integrated into the country.

 

A concern raised by the Chairman of Lily Company Ahmed Nasir was the importance of prioritizing tax reform rather than fixating on Income Tax. There are four taxes implemented in the country, including Duty Tax for imports. There was a strong suggestion to reduce the level of duty tax and electricity charges for businesses. This was to offset the costs induced by high costs of production that the businesses face, which would rise exponentially after the implementation of income tax. This would be disadvantageous to small startups and businesses in contrast to the booming large companies that gain millions in revenue. To ensure long term gains, the government should focus on reallocation of the tax levied from incomes to industries, that would bring about development to the economy in the prospective future.

 

There was concern around the reduction of foreign investors into the country after the implementation of income tax. The primary argument used was the fact that Dubai attracts a lot of foreign investors due to having little to no level of tax levied in the country. Income taxation may potentially decrease the level of investors into the Maldives. The International Federation of Asian and Western Pacific Contractors Association (IFOFCA) has expressed the need of prioritizing on ease of business in the country first, before focusing on Income Taxation. This would lead to a prominent rise in entrepreneurship and level of output in the country.

 

Business decisions may face potential variance depending on how Income Tax is implemented. It may impact on the location in which the business may be set up. For instance, it may give incentive to decentralize and start businesses in other atolls, diverting away from Male’. The lower levels of rent in contrast to Male’ would allow businessmen to offset some levels of cost of production. This decentralization would allow for further development to be encouraged in the atolls, boosting the local economies. However, business decisions may be affected if the government does not provide further details on the levels of income tax faced upon the businesses. Uncertainty would result in businesses potentially not employing further employees and holding back on expansions, in the off chance that income tax levels may be extremely high.

 

The government should ensure that the income tax system is both efficient and transparent. By taking prominent note from the tax system in the country of New Zealand, Maldives should ensure that all information should be communicated effectively between the businesses and the government. To maintain fairness, the businessmen of Maldives emphasized on the importance of having bandwidth levels depending on the level of income incurred by each individual. However, before the tax is levied, the citizens of the country should be given time in preparation for the new tax, as the other taxes before had been informed about to the people. This allows for a proper and smooth transition.

 

The Income Tax policy, despite the potential shortcomings for businesses, allow for long term economic pay offs. When changes are made to the level of income tax according to the economic climate of the country, it would reduce the level of fluctuations faced in an economy and result in steady economic growth. According to Literature into Income Tax, the impact of growth due to income tax varies from country to country. The long run benefits could be exponentially higher if the government focused on investing the tax gains into growing sectors in the country and diversification of industries.

 

The subject matter around Income Tax remains highly debatable, but it can be reached to a general consensus that the implementation would promise for long run reaps for Maldives. Many of the large businessmen of the country are in favor of the income tax, which would imply that the focus is not simply on short run gains, rather, on the collective whole and the prospective future the country may have in store for us.

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