Ministry of Finance revealed on Tuesday, that persons earning wages above MVR 40,000 will be subject to the new Income Tax as per the bill proposed to People's Majlis.
International Monetary Fund (IMF), advised MVR 10, 833 as the ceiling for the new taxpayers. However, the finalized limit was decided at MVR 40,000. It is estimated that individuals earning this amount per month will receive over MVR 480,000 in an year.
Speaking at press event "Nuvagadi", Ministry's Tax Policy Consultant Arushad Jameel said that the minimum wage subject to proposed Income Tax law was decided after extensive consideration.
He further added that with the current set values, the state will receive over MVR 680 million annually from an estimated 6,000 taxpayers. The budget proposed for the following year also includes MVR 600 million under Income Tax.
Speaking about some of the research done in deciding the income brackets, Arshad highlighted that the average spending of a household in Male' rounded up at around MVR 41,570. These figures were calculated based on a five person household with three earning individuals.
Out of the three income tax policies proposed; including Flat Income Tax, Progressive Income Tax and Dual Income Tax, IMF advised the Dual Income Tax for the state which incorporates the other two policies. However the state adopted the Progressive Income Tax policy.
Explaining the reasons for a 'Progressive' approach in tax collection, Arshad stated that a Flat Income Tax policy would be difficult to implement compared to its'Progressive' counterpart.
- Salaries between MVR 40,00 to MVR 60,000: 2,621 people paying 8%
- Salaries between MVR 60,000 to MVR 100,000: 2,285 people paying 10%
- Salaries above MVR 100,000: 960 people paying 15%
Earnings including rent, salaries and pensions excluding those sponsored by the state are subject to the new Income Tax. Some taxes including Remittance Tax, Land Sale Tax, Business Profit Tax, Bank Profit Tax and Petroleum Tax will be annulled with the introduction of Income Tax. According to Arshad, these taxes are being recalled because of their association with wages.