Parliament greenlights withholding tax hike bill, sends it to committee for review

The Parliament on Monday greenlighted a government bill designed to double the withholding tax on payments to foreign contractors.

The amendment to the Income Tax Act, sponsored by Mathiveri MP Hassan Zareer, seeks to increase the withholding tax on payments to foreign contractors from 5 percent to 10 percent.

The bill was accepted for consideration with a majority vote of 64-1 on Monday afternoon. The sole dissenting vote came from South Galolhu MP Meekail Ahmed Naseem, a lawmaker from the main opposition Maldivian Democratic Party (MDP).

The amendment has been sent to the Whole House Committee for review.

The bill states that 10 percent must be deducted as withholding tax from payments sent from the Maldives to overseas contractors.

According to the government, that the main purpose of the amendment is to establish a level playing field for local contractors when competing for construction projects in the Maldives.

Withholding tax is deducted by the payer and remitted to the state before the payment is made to the recipient. It applies to income earned in the Maldives by non-resident persons, ensuring that the state receives tax revenue from foreign entities operating in the country. The tax is typically charged on royalties, technical service fees, dividends and contract payments, preventing tax-free outflows and protecting state revenue.

The withholding tax on payments to foreign contractors had been reduced from 10 percent to 5 percent with an amendment enacted back in 2021.

The move to revert the rate back to 10 percent has been defended by Housing Minister Dr. Abdulla Muthalib, who described it as an important step important step towards correcting the imbalance it created, and creating a more level playing field for Maldivian contractors.