The effects and costs of Maldives tax regime on small and medium enterprises / Abdulla Nafiz

Abstract

Taxes are involuntary fees levied on individuals or corporation that are enforced by a 1 government entity to finance government activities. Tax regime in Maldives was introduced in the year 2011 with a very short notice and people were not ready for a complex tax system. 41 Tax complexity and the costs involved in complying with tax laws and regulations discourage 41 the growth of SMEs and created a negative perception about the tax regime in the Maldives. SMEs contribute a significant input to the GDP of Maldives. However, there was no research conducted to find the difficulties faced by SMEs after the introduction of tax regime.
MIRA records show that more than 90% of the businesses registered until third quarter of 2015 41 fall under the umbrella of SMEs and most of these SMEs are operated by family members. Since its contribution to the economy is high and government is trying to develop SMEs, it is highly important to find the obstacles faced by them to grow. In this regard a questionnaire was produces to a randomly selected hundred taxpayers from different parts of the country that are registered in MIRA. The questions were designed in such a way that they can express the major difficulties, costs and how their perception about tax regime in Maldives.
From the research it was found that the lack of tax knowledge, tax related expenses and same obligations as large businesses are major factors that lead to fail to comply with tax laws and 3 regulations by many SMEs. This created a negative impact on the tax regime followed in the 3 Maldives. Tax regime also increased the operating expenses of SMEs on record keeping, human capital, document storage, auditing expenses and so on. This became a burden for them and failed to comply with tax laws and regulations. Thus more than 52% of the SMEs had to pay fines and penalties for failing to comply with tax laws and regulations. Moreover, there are no tax preferences or tax credits given to SMEs operated in Maldives. Therefore, this research 3 was conducted to find the cost and effects of tax on SMEs in the Maldives