Over the few years Maldives economy has grown very much. Various opportunities have been open to investors and small scale business, in Maldives and the income that the government get also has increase in the past years. The tax has also effects many house holds and business. With the changes of laws and regulations there are many new taxes and royalties that are taken in from the public and the business organization. In this essay I am going to highlight the effects of the new tax reform in Maldives. In Maldives the tax administration authority is Maldives Inland Revenue Authority (MIRA). this authority was established as a separate and independent legal entity under the tax administration act which was ratified on 18th march 2010 (MIRA, 2011). Now there are for taxes that is goods and services tax (GST), business profit tax (BPT), tourism tax and bank profit tax. Also there are five fees that are taken. That is tourism land rent, duty free royalty, foreign investment royalty, fuel re-export royalty and re-export royalty. Taxation is the opposite of government subsidy. The effect is to change the behavior of suppliers and consumers by changing the cost of production and there by influencing the market equilibrium and quantity. Generally there are two main types of tax that is direct tax and indirect tax.
An indirect tax is imposed on producers by the government. Examples are excise duties on cigarettes, alcohol, fuel and also value added tax. Tax increases the cost of business causing an inward shift in the supply curve. The vertical distance between the pre-tax and the post-tax supply curve shows the tax per unit. With an indirect tax, the supplier may be able to pass on some or all of this tax onto the consumer through a higher price. This is known as shifting the burden of the tax and the ability of businesses to do this depends on the price elasticity of demand and supply. The diagram below shows the (Riley, G, 2006)
A Tax when Demand is price Elastic A Tax when Demand is price Elastic
In the left hand diagram, demand is elastic meaning that demand is responsive to a change in price. The producer must absorb most of the tax itself that is to accept a lower profit margin on each unit sold. When demand is elastic, the effect of a tax is to raise the price – but we see a bigger fall in equilibrium quantity. Output has fallen from Q to Q1 due to a contraction in demand. (Riley, G, 2006) In the right hand diagram above demand for the product is inelastic and therefore the producer is able to pass on most of the tax to the consumer through a higher price without losing too much in the way of sales. (Riley, G, 2006)
A tax that is paid directly by an individual or organization to the imposing entity. A taxpayer pays a direct tax to a government for different purposes, including real property tax, personal property tax, income tax or taxes on assets. Direct taxes are different from indirect taxes, where the tax is levied on one entity, such as a seller, and paid by another, such a sales tax paid by the buyer in a retail setting. A direct tax cannot be shifted to another individual or entity. The individual or organization upon which the tax is levied is responsible for the fulfillment of the tax payment. Indirect taxes, on the other hand, can be shifted from one taxpayer to another.
Goods and Services Tax (GST)
Goods and Services Tax is the tax charged on the value of goods and services supplied in the Maldives. it was started taking from 2 October 2011 onwards. Under goods and services Tax Act law. The Act brings within its scope the current tourism goods and services tax (T-GST) regime. T-GST is charged on all the goods and services consumed by tourists in tourism business in Maldives. From 2 October 2011 to 31 December 2011 the GST and T-GST rate was 3.5% and 1 January 2012 onwards the rate was...