Revenue, reform, and resilience: understanding the Maldives tax journey

The Maldives was known as one of the few countries with no personal income tax or general income tax system, along with its abundance of natural beauty and vibrant coral reefs. The government revenue relied heavily on import duties, tourism levies, fees, and indirect taxation to balance its economy. Over time, as the economy, especially the tourism sector, expanded and fiscal pressures grew, the need for a more diversified and progressive revenue base gained momentum.

In August 2010, the turning point came with formal institutional and legal frameworks: the Maldives Inland Revenue Authority (MIRA) was established under the Tax Administration Act (Law No. 3/2010) to centralize and modernize tax administration for the very first time in the Maldives.

In 2011, the MIRA introduced the Business Profit Tax (BPT) Act (No. 5/2011), which imposed a 15 percent tax on profits earned by companies, partnerships, and other entities. Alongside this, a separate Bank Profit Tax was applied at a higher rate of 25 percent. Introduction of these taxes marked the country’s first steps into formal direct taxation.

In the subsequent years, efforts to modernize and expand the system cultivated in the Income Tax Act (No. 25/2019), gazetted on 17 December 2019. The Act came into effect on 1st January 2020, with remuneration taxation starting from 1st April 2020. With its introduction, both the BPT and the Bank Profit Tax were repealed, though obligations under those laws for prior years continued to apply.

Parallel to direct taxes, the Maldives introduced a Goods & Services Tax (GST) regime in 2011 (Law No. 10/2011). Under the GST Act, consumption of goods and services was taxed, with a dual-rate system distinguishing “tourism” goods and services from general consumption.

Over time, the rates were revised upward; for example, from 1 January 2023, the tourism sector faces a 16 percent GST rate, while the general sector is taxed at 8 percent. The system also includes frequent exemptions, zero-rated goods, and special carve-outs. Another unique tax instrument is Green Tax, a per-day environmental levy imposed on tourists staying in resorts, guesthouses, or tourist vessels (e.g. USD 6/day in resorts, USD 3/day in local guesthouses) since 2016.

The current Maldivian tax system works as a hybrid model, combining both direct taxes (on income and business profits) and indirect taxes (on goods, services, tourism, and environmental use). The system is mainly managed by the Maldives Inland Revenue Authority (MIRA), which was set up in 2010 to modernize and centralize tax collection.

The Maldives tax system consists of income taxes, GST, environmental levies, and airport fees, with MIRA managing collection of other fees, such as vehicle fees, vessel fees, and company annual fees. Maldives tax system is designed to protect lower-income groups, capture revenue from tourism, and fund sustainability and infrastructure projects that heavily contribute to economic growth, while encouraging compliance through digital services and clear rules.

Withholding tax is a system where taxes are deducted from payments, like royalties, dividends, or service fees, made to non-residents. This tax is typically collected at the source of the income and is usually around 10 percent.

GST is a value-added tax on consumption. This tax was introduced back in 2011, with an initial 3.5 percent in the general sector and a 6 percent in the tourism sector. However, these rates gradually increased over the years, with the country's fiscal needs. Currently the rates are as follows:

It is evident how much the Maldives' rely on tourism as its primary revenue source as reflected in this two-tiered structure. There are also Zero-rate or exempted commodities from tax, especially essential goods (list is provided in the MIRA website) in order to ease the burden on residents and encourage exports.

This is an environmental levy designed to promote sustainability.

Revenue from the Green Tax goes directly into waste management and environmental protection projects, helping the Maldives balance tourism with ecological care.

All passengers departing the Maldives pay an Airport Service Charge and Airport Development Fee. Rates vary: Maldivians pay less, while foreigners pay more. These funds are used to finance and improve aviation infrastructure.

The Maldives follows a self-assessment system, which simply means taxpayers are responsible for calculating their own tax liabilities, filing returns, and making payments on time. This approach encourages accountability, but it also requires individuals and businesses to be familiar with tax rules and deadlines. To make the process easier, the Maldives Inland Revenue Authority (MIRA) provides a wide range of services, including online portals for e-filing and e-payments, taxpayer education sessions, and step-by-step guidance for small and medium-sized enterprises (SMEs). These tools are especially useful in reducing errors and improving compliance.

The Ministry of Finance plays an oversight role by monitoring tax expenditures, the revenue the government forgoes through exemptions, deductions, and incentives. Tracking these helps ensure that such benefits are being used effectively and remain transparent to the public.

In certain situations, special tax exemptions or incentives can be granted through a presidential decree, particularly to encourage investments in sectors vital for national development, such as infrastructure, renewable energy, and large-scale tourism projects. This allows the government to attract foreign investors while supporting long-term economic growth.

Regardless of the progress the Maldivian tax system made in recent years, it continues to face a number of challenges. A large portion of small businesses and self-employed people remain outside the formal tax net, partly due to the country’s scattered geography and the frequency of cash-based transactions. Limited financial and tax literacy adds another layer that makes compliance harder. 

The backbone of the Maldives’ economy, the tourism sector presents another dilemma: while higher GST and Green Tax rates generate revenue, the risk of increase in the cost hinders the competitive edge that the Maldives holds in the region. The generous use of tax incentives, such as long holidays and exemptions, can attract investment but often reduces the overall tax base if not carefully managed. At the same time, modern tax administration requires continuous upgrading, from handling transfer pricing and cross-border taxation to managing the challenges of the digital economy, areas where local expertise is still growing. 

The fiscal sustainability also remains fragile. It is heavily reliant on tourism and borrowing makes the economy vulnerable to global shocks, indicating the need to broaden the tax base through measures like domestic income and property taxation while also aligning with international tax standards to gain investor confidence.

Taxation plays a main role in shaping the Maldives’ economic and social development. A nation that is mainly dependent on tourism and imports, entrusting only on consumption taxes and external income can be speculative, confirming this during the global shock in the pandemic in 2020. 

The introduction of income tax has provided a more stable and balanced revenue base, improving fiscal sustainability while reducing budget volatility. The progressive structure of this tax ensures fairness, with higher earners and corporations contributing more, while lower-income groups remain exempt, helping to reduce inequality. 

In addition to revenue, taxation also strengthens governance: MIRA’s efforts to publish tax expenditures and share masked data increase transparency and accountability in granting incentives. The system is also used as a policy tool, with exemptions and capital allowances designed to encourage investment in strategic sectors such as tourism, infrastructure, and renewable energy. Stronger tax collection not only supports health, education, and infrastructure but also builds institutional capacity, public trust, and long-term economic stability.

Looking ahead, Maldives’ tax system is still emerging. Therefore, over roughly a decade and a half, the Maldives transformed from a near–tax-free environment to a hybrid fiscal regime combining direct and indirect taxes customized to its economic structure. But its rapid evolution shows political motivation and institutional commitment. If managed carefully, taxation will increasingly play a central role in shaping inclusive growth, fiscal stability, and resilient public finances for the Maldives.