Government Proposes Doubling Withholding Tax for Foreign Contractors to Boost Local Firms

The Maldivian government has submitted an amendment to the Income Tax Act seeking to double the withholding tax on foreign contractors engaged in local construction projects. The bill, introduced to the Majlis (the Maldivian Parliament) by Mathiveri MP Hassan Zareer, proposes raising the current tax rate from 5 percent to 10 percent. The administration aims to create a more equitable playing field for Maldivian businesses. By increasing the tax burden on non-resident contractors, the government intends to ensure local firms can compete more effectively during the bidding process for major national infrastructure projects. Under the proposed framework, the 10 percent deduction from payments made to non-resident contractors will serve as the final tax payment for that specific income. This shift simplifies the tax process by removing such income from the general taxable income calculations, ensuring the state captures its revenue more efficiently. Financial projections from the Maldives Inland Revenue Authority (MIRA) suggest the hike will generate an average of USD 16.3 million in additional annual state revenue. This fiscal gain is paired with a strategic goal of protecting domestic industry. During preliminary debates, lawmakers expressed strong support for the measure. Velidhoo MP Mohamed Abbas emphasized that the amendment is critical for the survival of small and medium-sized enterprises (SMEs), noting that local entrepreneurs have long struggled against foreign entities that operate without similar financial constraints. Ihavandhoo MP Ahmed Naseer described the move as part of a broader strategy to rectify previous economic negligence. While he cautioned that the full benefits, including increased US dollar inflows, may take two to four years to materialize, he maintained that the bill is essential for establishing equal opportunity. Adding to the urgency, Fuvahmulah South MP Ibrahim Hussain warned that the existing system, which allows foreign contractors to operate with minimal tax contributions, is unsustainable. He stressed that without these changes, the domestic business framework would continue to disadvantage Maldivians, potentially leading to long-term economic hardship for local contractors.