## 1mdvea2021002

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---

### Preface and Executive summary
- Remote mission to the Maldives during March 1–18, 2021 by IMF Fiscal Affairs Department (Tax Policy Division); mission head: Shafik Hebous; team: Nate Vernon (FAD) and Marc Seguin (FAD expert).
- Objective: assist Maldives in estimating and regularly reporting tax expenditures (TEs) to improve transparency in fiscal management.
- Scope: focus on TEs in the Goods and Services Tax (GST) and Business Profit Tax (BPT). Personal Income Tax (PIT) TEs deferred pending data.
- Key tasks performed:
  - Identified BPT and GST Benchmark tax systems:
    - GST Benchmark: a uniform GST rate (except zero-rate on exports) with no GST exemptions.
    - BPT Benchmark: single tax rate; deviations include reduced tax rates, deductions for charitable donations and employee welfare expenses, and BPT exemptions. Memo items recommended for costing/publishing include limitation to interest deductions and the higher tax rate on banks.
  - Built TE models:
    - BPT model based on business-level tax return data in 2019.
    - GST model based on Supply and Use Tables (SUT) from national accounts (latest available SUT data from 2014).
    - Both are static microsimulation models to simulate direct revenue effects of hypothetical tax policy changes.
  - Delivered hands-on training and accompanying slides to a joint MoF-MIRA team.
- Caveats:
  - Estimates are preliminary.
  - GST TEs require finetuning of assumptions and updating SUT data when available.
  - Uncertainty about COVID-19 impact on 2020 revenues.
  - Total TE accounts for interactions between individual TE items (i.e., not the sum of individual items).
- Institutional recommendation: form a joint MoF-MIRA task force (led by the MoF) to maintain data and update TEs; develop TPU capacity and knowledge management.

### Summary of recommendations
- Policy development:
  - Further build the capacity of the TPU.
  - Estimate and report TEs on an annual basis.
  - Set up institutional arrangement: form a joint MoF-MIRA task force (led by the MoF) mandated with maintaining the needed data and improving TE estimation.
  - Gradually expand TE estimation/publication to include:
    - the personal income tax.
    - revenue impacts of international aspects (e.g., cross-border withholding taxes).
- Technical recommendations:
  - Update the BPT model with the 2020 tax returns data when available.
  - Update the GST model with the 2017 SUT data when available.
  - Revisit GST model assumptions: taxable shares by sector, effective GST rates by commodity, growth projections of SUTs.

### Summary of IMF staff estimates (selected figures)
- BPT (2019 and 2020)
  - Total BPT TEs: 2019 — 284 MVR mln, 1.7% of total tax collected; 2020 — 60 MVR mln, 0.7% of total tax collected.
  - 5 percent tax rate: 2019 — 0 MVR mln, 0.0%; 2020 — Not applicable.
  - Tax-free threshold: 2019 — 211 MVR mln, 1.3%; 2020 — 44 MVR mln, 0.5%.
  - Employee welfare expenses deduction: 2019 — 59 MVR mln, 0.4%; 2020 — 11 MVR mln, 0.1%.
  - Charitable giving deduction: 2019 — 8 MVR mln, 0.0%; 2020 — 3 MVR mln, 0.0%.
  - Zakat al-mal deduction: 2019 — 4 MVR mln, 0.0%; 2020 — 1 MVR mln, 0.0%.
  - GST offset against BPT: 2019 — 0 MVR mln, 0.0%; 2020 — 0 MVR mln, 0.0%.
- BPT memo items (additional revenue if applied)
  - 25 percent rate for banks: 2019 — 257 MVR mln, 1.6%; 2020 — 257 MVR mln, 3.2%.
  - Fixed rental income deduction: 2019 — 1 MVR mln, 0.0%; 2020 — 1 MVR mln, 0.0%.
  - Limit on head office expense: 2019 — 2 MVR mln, 0.0%; 2020 — 3 MVR mln, 0.0%.
  - Limit on non-monetary remuneration: 2019 — 77 MVR mln, 0.5%; 2020 — 45 MVR mln, 0.6%.
  - Earnings stripping rule: 2019 — 17 MVR mln, 0.1%; 2020 — 4 MVR mln, 0.1%.
- GST (2014 and 2020)
  - Total GST TE: 2014 — 744 MVR mln, 6.9% of total tax collected; 2020 — 3,457 MVR mln, 42.6% of total tax collected.
  - Lower 6 percent GST Rate: 2014 — 604 MVR mln, 5.6%; 2020 — 1,981 MVR mln, 24.4%.
  - Zero-rated goods and services: 2014 — 230 MVR mln, 2.1%; 2020 — 487 MVR mln, 6.0%.
  - Exemptions: 2014 — -14 MVR mln, -0.1%; 2020 — 362 MVR mln, 4.5%.
- Benchmark GST rates:
  - For 2014, benchmark GST rate is 8.66 because it was raised in November from 8 to 12 percent.
  - In 2020, benchmark GST rate is 12 percent.

### Business Profit Tax (BPT) — benchmark, data and model
- Benchmark definition:
  - Single tax rate excluding tax reliefs other than necessary business expenses; anti-avoidance rules and system-improving functions included in Benchmark.
- Recent policy context:
  - Standard BPT rate as of 2020: 15 percent on business income.
  - Tax-free threshold: MVR 500,000 applies to all taxpayers.
  - Earnings stripping rule: interest deductions limited to 30 percent of EBITDA.
  - Banks: transitioned to BPT in 2020 but maintain higher tax rate of 25 percent.
  - PIT implemented in 2020 with progressive rates (zero percent up to MVR 720,000; 5.5 percent between MVR 720,000 and MVR 1.2 million; eight percent between MVR 1.2 million and MVR 1.8 million; 12 percent between MVR 1.8 million and MVR 2.4 million; top rate 15 percent above MVR 2.4 million).
- Data and taxpayer distribution:
  - MIRA maintains a taxpayer-level BPT database (used 2019 anonymized data).
  - Income tax payments contributed 19 percent to total tax revenue in 2019 (3.5 percent of GDP).
  - Over 10,000 taxpayers across 23 industries in 2019.
  - Entities with turnover exceeding MVR 100 million paid 75 percent of total BPT but constituted 2.4 percent of filers.
  - About 70 percent of filers with positive taxable income had turnover of less than MVR 20 million.
  - Many reported nil turnover (49 percent).
  - Sector shares of BPT payments (2019): Tourism 29 percent; Banks (Bank Profit Tax payers) 21 percent; Trade and vehicle repair 14 percent; Tourism and banking combined ~50 percent of business tax revenue while being 7 percent of firms.
- Model structure and parameters:
  - Static, firm-level Excel-based microsimulation capturing direct revenue impacts (no behavioral or general equilibrium effects).
  - Main steps: fit model to 2019 revenues (model fit 99.9 percent); compute tax under Benchmark; define TE as difference; allow sequential interactions if modeled.
  - Inputs: firm-level returns, tax calculator applying regime parameters, dashboard aggregating by sector/economy.
  - Parameters include BPT rates (tiered), earnings stripping limits, deductions (tax-free threshold, employee welfare, pension, Zakat al-mal, charitable giving), deduction limits, tax holidays, tax credits, full expensing option.

### BPT results for 2019 and 2020; bank rate classification
- 2019 results (excluding higher bank rate as TE):
  - Total BPT TE: MVR 284 million (9 percent of total BPT collected or 1.7 percent of total tax revenue).
  - Largest item: tax-free threshold.
  - Charitable giving deductions claimed in 2019: MVR 49 million.
  - Zakat al-mal deduction TE: below 1 percent of BPT revenues.
- 2019 if 25 percent bank rate treated as negative TE:
  - 2019 BPT TE: MVR 27 million (one percent of total BPT collected or 0.2 percent of total tax revenue).
  - The 25 percent tax rate on banks raises 40 percent more revenue than would be collected under the standard rate of 15 percent.
- 2020 results (adjusted for COVID-19 impacts and PIT migration):
  - Projection method: apply 2020 BPT regime to 2019 data excluding taxpayers migrated to PIT; adjust sector revenues/costs to 64 percent of 2019 levels so overall BPT revenue falls by 46 percent (aligned with IMF WEO projection for income tax collection in Maldives for 2020).
  - Total BPT TE (excluding higher bank rate): MVR 60 million (4 percent of total BPT collected or 0.7 percent of total tax collection).
  - If higher bank rate treated as negative TE: 2020 BPT TE: negative MVR 197 million (negative 12.8 percent of total BPT collected or negative 2.4 percent of total tax collection).
- Industry distribution notes:
  - Trade and repair of vehicles sector benefits most from TEs due to many small taxpayers and tax-free threshold effects.
  - Tourism sector has fewer but larger taxpayers with significant employee welfare deductions.
- Memo items (2019): earnings-stripping rule, limits on deductions for non-monetary remuneration, limits on head office expenses, fixed rental income deduction, 25 percent bank rate (banks excluded from most items due to data limits).

### Microsimulation policy scenarios (illustrative)
- Migration from BPT to PIT (2020):
  - About 26 percent of businesses migrated from BPT to PIT in 2020.
  - Net revenue impact of migration: MVR 44 million (1.4 percent of total BPT revenue).
    - Decomposed: negative revenue under BPT of MVR 128 million; additional revenue under PIT of MVR 84 million.
- Hypothetical tax incentives (banks excluded where data lacking):
  - Costed options: tax holidays to top 1 or 10 percent of taxpayers; one-time 15 percent non-refundable tax credits for investment (physical assets) and for R&D (intangibles/software); one-time full expensing of all capital spending.
  - Capital spending estimate: physical assets estimated at MVR 7 billion in 2019; intangibles/computer software about one tenth of that.
  - Key findings:
    - Tax holidays for 1 percent of large taxpayers (about 100 taxpayers) would be extremely costly because a few large taxpayers pay the majority of BPT.
    - Well-designed temporary cost-based incentives (investment tax credits or full expensing) are empirically more effective at accelerating investment than ill-designed tax holidays.
- Caveats on single-period modeling:
  - Single-period model understates revenue loss from tax credits (losses carried forward/refunded) and overstates loss from full expensing (medium-term depreciation effects not captured).
  - Multi-period model with net present value analysis needed for full accounting; losses carried forward may double fiscal cost of tax credit options when not discounting.

### Goods and Services Tax (GST) — benchmark, data and model
- Current GST design:
  - Distinction: tourism sector GST rate 12 percent; non-tourism sectors GST rate 6 percent.
  - Average (revenue weighted) GST rate ~8.8 percent.
  - About 63 percent of GST revenues from tourism sector.
  - In 2019, GST revenue was 8.7 percent of GDP.
- GST Benchmark:
  - Uniform GST rate of 12 percent applied to all goods and services consumed in Maldives, with no exemptions (except public goods) and no zero-rated goods or services (except exports).
  - Zero-rated exports are part of Benchmark.
  - Benchmark includes full invoice-credit input tax recovery at each stage.
- Primary deviations from Benchmark:
  I. Non-tourism rate of 6 percent (vs. 12 percent Benchmark).
  II. Exempt goods and services in the GST Act.
  III. Zero-rated goods and services in the GST Act.
- Unmodeled but relevant aspects:
  I. GST registration threshold (suppliers below MVR 1,000,000): can generate TEs and negative TEs; net effect expected to be very low in practice.
  II. No refund where input tax exceeds output tax: law allows offsetting excess GST against BPT but offsets are rare—this implies a negative TE not captured.
  III. Timing delays in claiming input tax credits on CAPEX > MVR 500,000 (36-month claiming) create year-specific negative TE not estimated due to data limits.
- Data sources and model:
  - Main data: Supply and Use Tables (SUTs) covering 2014 (disaggregated into 40 industrial sectors and 51 commodities).
  - Effective Tax Rates (ETRs) per commodity computed as tax rate × taxable share.
    - Tax rates used: 12 percent for tourist purchases; zero for zero-rated/exempt; 6 percent for other domestic purchases (for non-tourism).
    - Taxable share: proportion of each commodity that is taxable versus exempt/zero-rated; differs for households and exports (tourist consumption).
  - Model steps: use SUTs to estimate GST on final demand (households, governments, NPISH, exports consumed by tourists), estimate unrecoverable input GST for exempt producers, estimate revenue under Benchmark, compute total GST TE as difference.
  - Model overestimates total GST revenues by about 3 percent in 2014; used 8.66 percent effective rate for 2014 (rate raised in November 2014 from 8 to 12 percent); later years use 12 percent.

### GST results, interactions, and priorities for improvement
- Results highlights:
  - Total GST TE accounts for interactions and is not equal to the sum of individual items.
  - Largest individual TE item in 2014 and 2020: deviation of non-tourism GST rate from 12 percent Benchmark.
  - Second largest TE item: zero-rating.
  - Increase in TE from 2014 to 2020 partially explained by growth of non-tourism sector and larger rate differential (12 versus 6 percent in 2020 vs. 8.66 versus 6 percent in 2014).
- Priority upgrades:
  I. Update taxable shares in SUTs (exempted, zero-rated, 6 percent, 12 percent) with National Bureau of Statistics.
  II. Refine allocation of Gross Fixed Capital Formation by industry; distinguish residential construction and business/private capital formation.
  III. Account for GST registration threshold by matching GST taxpayer database with business income taxpayer database.
  IV. Review input tax refund assumptions (current model assumes no delays; reality may understate GST).
  V. Reflect timing rules for CAPEX input tax claiming (immediate claim assumed; should reflect 36-month claimability for CAPEX > MVR 500K).
  VI. Regularly update growth factors and projections using aggregated GST data and taxpayer databases.

### GST key figures by commodity and taxpayer (selected)
- Estimated Maldives GST Paid by Commodity and Category of Taxpayer (2014, MVR million) — totals:
  - Tourists: 3,310.77; Households and NPISH: 665.22; Governments: 141.17; Exempt Businesses: 556.43; Total: 4,673.60.
- Estimated Maldives GST Paid by Commodity and Category of Taxpayer (2020, MVR million) — totals:
  - Tourists: 2,485.11; Households and NPISH: 1,027.63; Governments: 491.7561; Exempt Businesses: 461.81; Total: 4,466.32.
- GST TEs by goods and services (MVR mln; Percent of total tax collected)
  - 2014: Total GST TE 744 6.9%
    - Lower 6% GST Rate 604 5.6%
    - Zero-rated goods and services 230 2.1%
    - Exemptions -14 -0.1%
  - 2020: Total GST TE 3,457 42.6%
    - Lower 6% GST Rate 1,981 24.4%
    - Zero-rated goods and services 487 6.0%
    - Exemptions 362 4.5%
- Selected GST zero-rating adjustments (MVR mln; percent of total tax collected)
  - Agri/horticulture and market gardening: 31 0.3% (2014); 133.6 1.6% (2020)
  - Fish and other fishing products: 40 0.4% (2014); 166.0 2.0% (2020)
  - Coke oven, refined petroleum products: 91 0.8% (2014); 94.0 1.2% (2020)
- Selected GST exemptions by good and service (MVR mln; percent of total tax collected)
  - Total exemptions: -14 -0.1% (2014); 362 4.5% (2020)
  - Electricity, town gas, steam and hot water: -41 -0.4% (2014); 47 0.6% (2020)
  - Real estate services: -28 -0.3% (2014); 290 3.6% (2020)
  - Financial and related services: 55 0.5% (2014); 27 0.3% (2020)
  - Interactions: 14 0.1% (2014); -13 -0.2% (2020)

### Institutional setup, reporting and methodological guidance
- Institutional setup:
  - Ensure TPU (or joint MoF-MIRA task force) has regular access to and ability to validate necessary data; protect integrity of TE definitions, data and methods.
  - Interim: form joint MoF-MIRA task force headed by MoF to estimate and update TEs.
  - Capacity building: develop analytical capacity of TPU.
- Reporting frequency, legal basis, coverage:
  - Recommend annual reporting of TEs (start with BPT and GST, then expand to PIT and international aspects such as non-resident WHT deviations).
  - Consider legal requirement to produce TEs.
- Reporting content (minimum and additional elements):
  - Minimum: title and brief description; legal reference; type of tax; type of measure.
  - Additional: source of data; reference to estimation model; number of beneficiaries; historical TE estimates and projections (P).
- Methodological caveats to report:
  - State static-method assumptions (no behavioral or economy-wide effects).
  - Clarify that TE estimation is not normative, not a compliance gap analysis, and TEs are not comparable across countries due to different Benchmarks and tax designs.

*Source: IMF staff calculation and mission report.*

### PREFACE _________________________________________________________________________________________ 5

### 1mdvea2021002 - PREFACE _________________________________________________________________________________________ 5

### Preface
- A remote mission was conducted to the Maldives during March 1–18, 2021 by a team headed by the IMF Fiscal Affairs Department (Tax Policy Division).
- Mission team: Shafik Hebous (mission head), Nate Vernon (FAD), and Marc Seguin (FAD expert).
- The mission responded to a request from Mr. Ibrahim Ameer, Minister of Finance.
- Discussions were held with the Ministry of Finance (MoF) led by Mr. Ahmed Saruvash Adam (Chief Financial Budget Executive), Ismail Ali Manik (Minister of State for Finance), and Fathimath Razeena (Financial Controller).
- Discussions were held with the Maldives Inland Revenue Authority (MIRA) led by Mr. Fathuhulla Jameel Commissioner General of Taxation and Asma Shafeeu (Deputy Commissioner General of Taxation).
- The mission delivered a remote workshop providing hands-on training on tax expenditure models developed for the Maldives; attendees were a joint team from the MoF and MIRA expected to assume responsibility for estimating tax expenditures.
- The mission delivered accompanying slides (with details of the models) during the workshop.
- Mission acknowledgements: thanks to attendees for active participation; thanks to Ms. Hasna Ahmad (head of the Tax Policy Unit at the MoF) for organization; thanks to Ms. Zumra Aminath (Director for Planning and Development at MIRA) for facilitating access to data and discussions.

### Executive Summary
- Objective: assist Maldives in estimating and regularly reporting tax expenditures (TEs) to improve transparency in fiscal management.
- Scope: report focuses on TEs in the Goods and Services Tax (GST) and Business Profit Tax (BPT). TEs in the Personal Income Tax (PIT) are left for future capacity development because necessary data are still being collected.
- Key tasks performed:
  - Identified BPT and GST Benchmark tax systems:
    - GST Benchmark: a uniform GST rate (except zero-rate on exports) with no GST exemptions.
    - BPT Benchmark: single tax rate; deviations include reduced tax rates, tax deductions for expenses unnecessary for doing business (e.g., deductions for charitable donations and employee welfare expenses), and BPT exemptions. Memo items recommended for costing/publishing include limitation to interest deductions and the higher tax rate on banks.
  - Built TE models:
    - BPT model based on business-level tax return data in 2019.
    - GST model based on the Supply and Use Tables (SUT) from national accounts (latest available SUT data from 2014).
    - Both models use static microsimulation techniques and can simulate direct revenue effects of hypothetical tax policy changes.
  - Delivered hands-on training on both TE models to a joint MoF-MIRA team.
- Institutional recommendation: form a devoted team (initially a joint MoF-MIRA task force headed by the MoF) to assume responsibility for estimating and updating TEs; establish processes for obtaining data regularly (from National Bureau of Statistics, MIRA, and other providers); and establish knowledge management.
- Capacity development note: main purpose is technical support and training enabling authorities to further improve delivered models; the TE team should advance models and expand estimation to other areas (e.g., PIT and international aspects of corporate taxation).
- Caveats:
  - Estimates are preliminary and subject to important caveats described in the report.
  - GST TEs require finetuning model assumptions and updating SUT data when available.
  - Uncertainty surrounding the impact of COVID-19 on revenues in 2020.
  - Total TE accounts for interaction between individual TE items (i.e., it is not the sum of TEs from individual items).
- Clarifications:
  - Estimating TEs is not a normative analysis nor a compliance gap analysis.
  - Effectiveness and efficiency of TEs require separate analysis.
  - TEs are not comparable across countries due to different Benchmark assumptions and tax system designs.

### Summary of Recommendations
Policy Development
- Further build the capacity of the TPU.
- Estimate and report TEs on an annual basis.
- Set up the institutional arrangement―form a joint MoF-MIRA task force (led by the MoF) mandated with maintaining the needed data and further improving the estimation of TEs.
- Gradually expand the TE estimation and publication to cover additional areas, including:
  - the personal income tax.
  - revenue impacts of international aspects (e.g., from cross-border withholding taxes).

Technical Recommendations
- Update the BPT model with the 2020 tax returns data, as they become available.
- Update the GST model with the 2017 the SUT data, as they become available.
- Revisit the assumptions of the GST model, especially about taxable shares of goods and services in each industrial sector; effective GST rates by commodity, and growth projections of the SUTs.

### Summary of Estimates of TEs (selected figures from IMF staff calculation)
- BPT (2019 and 2020)
  - Total BPT TEs: 2019 — 284 MVR mln, 1.7% of total tax collected; 2020 — 60 MVR mln, 0.7% of total tax collected.
  - 5 percent tax rate: 2019 — 0 MVR mln, 0.0%; 2020 — Not applicable.
  - Tax-free threshold: 2019 — 211 MVR mln, 1.3%; 2020 — 44 MVR mln, 0.5%.
  - Employee welfare expenses deduction: 2019 — 59 MVR mln, 0.4%; 2020 — 11 MVR mln, 0.1%.
  - Charitable giving deduction: 2019 — 8 MVR mln, 0.0%; 2020 — 3 MVR mln, 0.0%.
  - Zakat al-mal deduction: 2019 — 4 MVR mln, 0.0%; 2020 — 1 MVR mln, 0.0%.
  - GST offset against BPT: 2019 — 0 MVR mln, 0.0%; 2020 — 0 MVR mln, 0.0%.
- BPT memo items (additional revenue if applied)
  - 25 percent rate for banks: 2019 — 257 MVR mln, 1.6%; 2020 — 257 MVR mln, 3.2%.
  - Fixed rental income deduction: 2019 — 1 MVR mln, 0.0%; 2020 — 1 MVR mln, 0.0%.
  - Limit on head office expense: 2019 — 2 MVR mln, 0.0%; 2020 — 3 MVR mln, 0.0%.
  - Limit on non-monetary remuneration: 2019 — 77 MVR mln, 0.5%; 2020 — 45 MVR mln, 0.6%.
  - Earnings stripping rule: 2019 — 17 MVR mln, 0.1%; 2020 — 4 MVR mln, 0.1%.
- GST (2014 and 2020)
  - Total GST TE: 2014 — 744 MVR mln, 6.9% of total tax collected; 2020 — 3,457 MVR mln, 42.6% of total tax collected.
  - Lower 6 percent GST Rate: 2014 — 604 MVR mln, 5.6%; 2020 — 1,981 MVR mln, 24.4%.
  - Zero-rated goods and services: 2014 — 230 MVR mln, 2.1%; 2020 — 487 MVR mln, 6.0%.
  - Exemptions: 2014 — -14 MVR mln, -0.1%; 2020 — 362 MVR mln, 4.5%.
- Note on benchmark GST rates:
  - For 2014, the benchmark GST rate is 8.66 because it was raised in November from 8 to 12 percent.
  - In 2020, the benchmark GST rate is 12 percent.
- Note on table interpretation:
  - Table reports revenue impact (cost) of deviation of a provision from the Benchmark (TE item) and memo items.
  - Positive number for a TE item indicates an increase in revenue from removing the deviation.
  - Memo items show additional revenue raised in the system due to the specific provision.

### I. Introduction (high-level points)
- Rationale: Revenue forgone from TEs should be measured and regularly published to improve transparency in fiscal management.
- Maldives status:
  - Pilot study reported TEs in import duty.
  - TEs in GST and BPT had not been estimated and published prior to this work.
- Deliverables: TE models for BPT and GST delivered with hands-on training to a joint MoF-MIRA team; material provided during the workshop details model functioning and operation.
- PIT: first PIT implemented in 2020; necessary data for estimating PIT TEs are not yet fully available.
- Report structure: Section II — BPT Benchmark and model; Section III — GST Benchmark and model; Section IV — reporting of TEs.

### II. Tax Expenditures in the Business Profit Tax — Benchmark of the Business Profit Tax
Overview of recent tax policy changes and current BPT features
- Progress since 2019 includes:
  - establishing a Tax Policy Unit (TPU);
  - introducing a PIT;
  - abolishing a preferential tax regime (reduced rate of 5 percent on foreign income);
  - abolishing all tax exemptions and incentives under the foreign investment act (FIA);
  - introducing transfer pricing rules and limitation to interest deductions;
  - introducing a cross-border withholding tax (WHT) on all sources of capital income as well as technical and management fees.
- As of 2020:
  - Standard BPT rate: 15 percent on business income.
  - Tax-free threshold: MVR 500,000 applies to all taxpayers.
  - Financial accounting profit generally recognized with adjustments, such as fixed 20 percent deduction for rental income, deductions for charitable donations, and deductions for welfare expenses on employees.
  - Earnings stripping rule limits interest deductions to 30 percent of EBITDA.
  - Prior to 2020, a minority (0.5 percent of BPT filers) were eligible for a reduced rate of 5 percent.
- Banks:
  - Transitioned from Bank Profit Tax to BPT in 2020 while maintaining higher tax rate of 25 percent.
  - Prior Bank Profit Tax computation slightly deviated from BPT computation.
- PIT:
  - Implemented in 2020 through the Income Tax Act (ITA).
  - Applies to earnings, including remuneration, capital income and dividends, for residents/established individuals and partnerships.
  - Progressive rate structure with zero percent tax on earnings up to MVR 720,000 and top rate of 15 percent on income above MVR 2.4 million.
  - Earnings between MVR 720,000 and MVR 1.2 million taxed at 5.5 percent; between MVR 1.2 million and MVR 1.8 million taxed at eight percent; between MVR 1.8 million and MVR 2.4 million taxed at 12 percent.
  - By legal form choice, businesses previously paying BPT (e.g., partnerships) can elect to pay PIT as sole proprietorships.
  - Roughly 26 percent of BPT payers in 2019 will pay PIT in 2020.
- Benchmark definition:
  - Benchmark for BPT: single tax rate excluding tax reliefs other than necessary business expenses; anti-tax avoidance rules and functions improving tax system are included in the Benchmark.
- Identified deviations from Benchmark in 2019 and 2020:
  I. Reduced tax rate of 5 percent for specific taxpayers (removed in 2020).
  II. Tax-free threshold of MVR 500,000.
  III. Other deductions not related to cost of doing business:
    - Deductions for charitable giving (Section 31 of the BPT Act).
    - Employee welfare expenses (Section 30 of the BPT Act).
    - Excess GST used to offset BPT payments (de jure allowed but de facto no offsets occurred in 2019 or 2020 per MIRA and MOF staff).
- Zakat-al-Mal:
  - Mandatory payment of 2.5 percent of the stock of net wealth if a minimum Nisaab (currently MVR 6,961.50) is held for the lunar year.
  - Deductible for BPT calculation if paid to government.
  - Because it is mandatory and not directly linked to business expenses, it could be considered part of the Benchmark or treated as a TE; the mission regards the deduction for Zakat-al-Mal as a TE and recommends computing and publishing its budgetary implication for BPT.

*Source: IMF staff calculation and mission report.*

### 12.      Arguments can be made for and against classifying the higher tax rate on banks (of

### 1mdvea2021002 - 12.      Arguments can be made for and against classifying the higher tax rate on banks (of

### Classification of the higher tax rate on banks
- The higher tax rate on banks is 25 percent; the Benchmark uniform rate is 15 percent.
- Arguments for inclusion in the Benchmark:
  - Banks fell under a separate law and filed separate tax returns until 2020; some countries with higher bank rates include them in the Benchmark (example cited: United Kingdom imposes an eight percent additional tax rate on banks and includes it in the Benchmark).
- Arguments for treating it as a negative tax expenditure (TE):
  - It deviates from a uniform 15 percent rate.
  - Typical TEs are positive (they reduce BPT collection); the higher bank rate increases BPT collection, hence would be a “negative” TE.
- Recommendation:
  - Regardless of classification, report the additional revenue raised from the higher tax rate on banks, either as a TE or a memo item.

### Business Profit Tax (BPT) data and taxpayer distribution
- Data and coverage:
  - MIRA maintains a taxpayer-level BPT database with detailed tax return information, including economic sector.
  - The mission used primarily anonymized taxpayer data from 2019.
  - Until 2019, banks filed tax returns separately from the BPT; banks were added to the database for 2019. Starting from 2020, all companies file under the ITA.
- Aggregate contribution and shares:
  - Income tax payments contributed 19 percent to total tax revenue in 2019 (3.5 percent of GDP).
  - In 2019, there were over 10,000 taxpayers under the BPT and Bank Profit Tax across 23 industries.
  - Entities with turnover exceeding MVR 100 million paid 75 percent of total BPT but constituted 2.4 percent of filers.
  - There was a significant share of small filers with positive tax paid (1.2 thousand).
  - About 70 percent of filers with positive taxable income had turnover of less than MVR 20 million.
  - Majority of filers had turnover of less than MVR 500,000 (i.e., below the tax-free threshold); many reported nil turnover (49 percent).
- Sector concentration of BPT payments (2019):
  - Tourism: 29 percent of BPT payments.
  - Banks that paid Bank Profit Tax: 21 percent of BPT payments.
  - Trade and vehicle repair sectors: 14 percent of BPT payments.
  - Tourism and banking combined: about 50 percent of total business tax revenue while comprising 7 percent of total number of firms.
  - Trade and vehicle repair sector comprised about 35 percent of filers.
  - All other sectors combined: 37 percent of total BPT and 58 percent of filers.
  - PIT filers paid 4 percent of income tax; non-bank current BPT filers paid about 75 percent of the income tax.

### Model for estimating Tax Expenditures (TEs) in the BPT — structure and parameters
- Model type and scope:
  - Static, firm-level Excel-based model tailored to the Maldives to calculate TEs.
  - Captures only the direct revenue impact of deviations from a Benchmark (no behavioral responses or general equilibrium effects).
- General estimation steps:
  I. Estimate the 2019 revenues from 2019 BPT returns database; model fit to actual 2019 revenues is 99.9 percent.  
  II. Estimate tax paid under the Benchmark BPT system for each identified TE item individually.  
  III. Define TE as the difference in tax paid between existing and Benchmark systems (revenue forgone method).  
  IV. Steps I–III can be applied individually per TE or sequentially to account for interactions.
- Model workflow:
  - Database sheet: firm-level BPT tax return inputs (revenue, cost of sales, interest paid).
  - Tax calculator sheet: applies tax regime parameters from the dashboard to compute taxable income and BPT payable.
  - Dashboard and summary statistics: aggregate results by sector and economy, compare regimes, reconciliation.
- Parameters included (selected examples preserved as in source):
  - BPT rate: Tax rate for tier 1 taxpayers; Tax rate for tier 2 taxpayers; Tax rate paid by taxpayers eligible for a lower tax rate; Tax rate paid by taxpayers subject to the general tax rate.
  - Earnings stripping rule: Proportion of interest deductible; interest deductibility limit (entered as a percent of EBTIDA); exemptions for specified firms; selected sources of interest exempt.
  - Deductions not directly related to business costs: Tax-free threshold; Proportion of employee welfare expenses deductible; Proportion of pension expenses deductible; Proportion of Zakat al-mal deductible; Proportion of charitable giving deductible.
  - Limits on deductions: Rental income deduction electing Section 9 (percent of rental income); Fixed rental income deduction (percent of total rental income); Maximum head office expense deduction (percent of total revenue); Maximum non-monetary remuneration deduction (percent of specified profit); Maximum deduction for charitable giving (percent of specified profit).
  - Tax holiday: Top X% of taxpayers receiving tax holiday; BPT rate for taxpayers receiving tax holiday.
  - Tax credits: Tax credit rate; Tax credits for aircraft, wooden marine vessels, other marine vessels, earth moving vehicles, plant and equipment, computer software, intangibles.
  - Full expensing: Whether capital costs incurred during the accounting period are expensed immediately.

### First results — BPT Expenditure for 2019 and 2020
- Method:
  - TEs are costed by comparing tax collected under the existing regime to tax collected under the regime with a single TE item removed, reported individually.
  - Sum of individual TEs does not equal total TEs because interactions are ignored unless sequential interactions are modeled.
- Results for 2019:
  - Total BPT TE (if the higher tax rate on banks is not counted as a TE): MVR 284 million (9 percent of total BPT collected or 1.7 percent of total tax revenue).
  - Major contributors:
    - Largest item: tax-free threshold.
    - Charitable giving deductions claimed in 2019: MVR 49 million.
    - Zakat al-mal deduction: TE is low—below 1 percent of BPT revenues.
  - If the higher tax rate on banks is considered a negative TE:
    - 2019 BPT TE: MVR 27 million (one percent of total BPT collected or 0.2 percent of total tax revenue).
    - The 25 percent tax rate on banks raises 40 percent more revenue than would be collected under the standard rate of 15 percent.
  - Industry variation (2019):
    - Trade and repair of vehicles sector benefits most from TEs due to many small taxpayers benefiting from the tax-free threshold.
    - Tourism sector: fewer but larger taxpayers; significant deductions for employee welfare expenses.
    - If 25 percent bank rate classified as a TE, banks would have a large negative TE.
  - Memo items (2019) — revenue implications (all increase revenue; positive amount interpreted as reduction in BPT revenue, negative amount as revenue raised):
    - Earning-stripping rule.
    - Limits on deductions for non-monetary remuneration.
    - Limits on head office expenses.
    - Fixed rental income deduction.
    - 25 percent rate for banks paying the Bank Profit Tax.
    - Note: Banks were excluded from analysis for most items due to unavailability of information; the higher bank rate is among the memo items reported.
- Results for 2020 (acknowledging COVID-19 impact and projection caveats):
  - Projection method:
    - Apply 2020 BPT regime to 2019 data, excluding taxpayers that no longer pay BPT under the ITA.
    - Adjust variable revenue and cost items for sectors impacted by COVID-19 (all except financial services and information and communications).
    - Adjusted items: revenue from financial statement, rental income, cost of goods sold, expenses incurred to generate rental income.
    - Level of adjustment set to 64 percent of 2019 levels so overall BPT revenue falls by 46 percent (aligned with IMF WEO projections for income tax collection in the Maldives for 2020).
  - TE estimates (2020), excluding higher bank rate:
    - Total BPT TE: MVR 60 million (4 percent of total BPT collected or 0.7 percent of total tax collection).
    - Reduction from 2019 to 2020 (9 percent to 4 percent of total BPT collected) explained by:
      - Tax-free threshold reduced impact because many small taxpayers pay the PIT under the ITA.
      - Trade and repair of vehicles sector has reduced TE benefit.
  - If higher bank rate treated as negative TE:
    - 2020 BPT TE: negative MVR 197 million (negative 12.8 percent of total BPT collected or negative 2.4 percent of total tax collection).

### Microsimulation — illustrative policy scenarios and costing
- Purpose:
  - Use the static model to assess direct revenue impact of policy changes by changing parameters in Table 1; can be extended to additional scenarios.
- Example exercises:
  1. Migration from BPT to PIT (2020):
     - About 26 percent of businesses migrated from the BPT to the PIT in 2020.
     - Net revenue impact of migration: MVR 44 million (1.4 percent of total BPT revenue).
       - Decomposed as: negative revenue under BPT of MVR 128 million; additional revenue under PIT of MVR 84 million.
  2. Hypothetical tax incentives (illustrative TE costing; banks excluded due to lack of information):
     - Costed policies:
       - Tax holidays to the top 1 or 10 percent of taxpayers (by reported taxable income).
       - One-time 15 percent non-refundable tax credit for investment (aircrafts, marine vessels, earth moving vehicles, plant and equipment).
       - One-time 15 percent non-refundable tax credit for R&D (intangibles and computer software).
       - One-time full expensing of all capital spending.
     - Capital spending estimation methodology:
       - For firms with 2018 and 2019 returns (roughly 80 percent of firms): capital spending = total cost of assets in 2019 (inclusive of assets disposed in 2019) minus total cost of assets in 2018 (exclusive of assets disposed in 2018); negative results set to zero.
       - For firms without 2018 returns: capital spending approximated as total cost of assets in 2019 less accumulated depreciation on those assets (assumes assets were purchased in 2019).
     - Key findings:
       - Tax holidays offered to one percent of large taxpayers (100 taxpayers) would significantly reduce BPT collection and are extremely costly because a few large taxpayers pay the vast majority of BPT.
       - Well-designed temporary cost-based tax incentives (investment tax credits or full expensing) are empirically more effective in accelerating investment than ill-designed tax holidays.

*Source: IMF staff calculation.*

### 40.      The revenue loss from full expensing and tax credit is large, but lower than that

### 40.      The revenue loss from full expensing and tax credit is large, but lower than that from a tax holiday

### Revenue impact of full expensing versus tax credit
- Taxpaying firms in the Maldives have little investment in intangibles and computer software, leading to a lower revenue impact from a policy that provides credits for such costs.
- Costs for physical assets are large: estimated to be MVR 7 billion in 2019, ten times larger than that of intangibles and computer software.
- Full expensing would provide immediate tax relief for profitable firms making capital investments.
- The revenue loss from full expensing and tax credit is large, but lower than that from a tax holiday.

### Caveats and modeling limitations (single-period model)
- Analysis reported is based on a single period model, which:
  - Understates the revenue loss from tax credits.
  - Overstates the revenue loss from full expensing.
- Tax credits provided to companies making losses are generally carried forward to subsequent years or refunded, leading to reduced revenue in future years (estimated to roughly double the fiscal cost of the tax credit options when not accounting for the time value of money).
- Full expensing decreases revenue in the first (and potentially immediately succeeding years), but would increase revenue in medium-term as firms could no longer claim depreciation deductions on the fully expensed items.
- A full accounting of tax credit and expensing policies would require a multiple period model with net present value analysis.
- Note: There are many firms that are put into a loss position with full expensing and those losses would carryforward to subsequent years, potentially reducing BPT revenue for multiple years.

### Benchmark of the Goods and Services Tax (GST)
- Current GST design:
  - Distinction between the tourism sector (GST rate of 12 percent) and non-tourism sectors (GST rate of 6 percent).
  - GST in the Maldives is comparable to multistage invoice-credit based VAT systems, with the important exception of the tourism/non-tourism separation.
  - Section 14 of the GST Act categorizes GST into (a) tourism goods and services and (b) general goods and services apart from those under (a).
  - GST Regulations (Chapter 1, section 3(c)) specify separate reporting to MIRA for persons carrying on taxable activities in both areas; in practice sales between tourist and non-tourist companies appear treated under normal VAT charging and crediting rules.
- Key statistics:
  - Average (revenue weighted) GST rate is about 8.8 percent.
  - About 63 percent of GST revenues is from the tourism sector.
  - In 2019, GST revenue was 8.7 percent of GDP.
- Benchmark definition:
  - Uniform GST rate of 12 percent applied to all goods and services consumed in the Maldives, with no exemptions (except for public goods) and no zero-rated goods or services (except exports).
  - Zero-rated exports are part of the Benchmark.
  - VAT Benchmark requires that at each stage businesses can claim tax credits to recover GST paid on business inputs or capital investments.

### Deviations from the GST Benchmark and unmodelled aspects
- Primary deviations identified:
  I. Application of a rate of 6 percent on goods and services outside the tourism sector (vs. the GST rate of 12 percent).
  II. Exempt goods and services in the GST Act.
  III. Zero-rated goods and services in the GST Act.
- Three specific aspects that deviate from the Benchmark but were not explicitly modelled:
  I. GST registration threshold:
    - Suppliers below turnover level of MVR 1,000,000 (roughly corresponding to USD 64,500) fall below the GST registration threshold, generating (i) tax expenditures (TEs) as GST is not paid on final demand; and (ii) negative TEs as GST paid on inputs of these suppliers is not recovered.
    - In practice, net TE below the GST registration threshold is expected to be very low because:
      - Registered taxpayers with turnover close to the threshold contribute very little to the GST.
      - Importers of goods and suppliers of tourism goods and services are required to register even if supplies do not exceed MVR 1 million.
      - Businesses below the threshold can voluntarily register.
  II. No refund where input tax exceeds output tax:
    - Input tax can only be set off against output tax; there are no refunds if it exceeds output tax.
    - Although the Law allows offsetting excess GST against the BPT, in practice offsetting is rare; this implies a negative TE on any excess input tax not refunded, not captured in TE estimates.
  III. Delays in claiming input tax credits on CAPEX:
    - Claiming input tax on CAPEX exceeding 500,000 MVR is possible only gradually over 36 months rather than immediately.
    - This timing issue generates a negative TE in a particular year not estimated in the model due to lack of necessary data.

### GST data sources and estimation model
- Main data source: Supply and Use Tables (SUTs), latest available covering 2014, with disaggregated information for 40 industrial sectors and 51 commodities.
- SUTs used to estimate:
  - Level of GST paid by final consumers (households, governments, non-profits).
  - Exports consumed by tourists in the Maldives.
  - Amount of GST paid by businesses on intermediate inputs and capital investments used to produce exempted goods or services.
- Effective Tax Rates (ETRs) per commodity computed as product of “tax rate × taxable share”:
  I. Tax rates: 12 percent on purchases by tourists; zero for zero-rated or exempted goods and services; 6 percent for other goods and services purchased by domestic consumers.
  II. Taxable share: proportion of each commodity that is taxable versus exempt or zero-rated; shares differ for household consumption and exports (tourist consumption).
- Model general structure:
  I. Data input: SUTs; share of each commodity exempted or zero-rated; share allocated to exports; ETRs per commodity.
  II. Estimate GST on final demand from the Use Matrix for household/NPISH expenditures, government expenditures, exports (goods and services consumed in the Maldives); ideally disentangle government/public capital formation, residential construction, and business/private capital formation.
  III. Estimate non-refundable GST paid on business inputs in sectors producing exempt goods and services; unrecoverable GST equals business input expenditures by commodity × ETR × share of exempt supplies for that industry.
  IV. Model overestimates total GST revenues by about 3 percent in 2014.
  V. Redo estimation for the benchmark system.
  VI. Total GST TE = difference between GST revenue in existing system and benchmark system.
  VII. For years after SUTs year, use projections and growth rates (national sources and IMF WEO) to estimate GST revenues and TEs.
- Note on rate changes:
  - Used GST rate for 2014 is 8.66 percent because GST rate was raised in November 2014 from 8 to 12 percent. In later years, GST rate has been 12 percent.

### Results, interactions, and priorities for model improvement
- Results:
  - The total TE in the GST is estimated considering all TE items and is not equal to the sum of individual TE items due to interactions.
  - Largest individual TE item in 2014 and 2020 is the deviation of the non-tourism GST rate from the Benchmark rate of 12 percent.
  - Second largest TE item is zero-rating.
  - Figure 13 (referenced) shows TEs in 2014 and 2020; benchmark GST rate is 12 percent for 2020 and 8.66 percent for 2014.
  - Increase in TE in 2020 (compared to 2014) is partly explained by growth of the non-tourism sector and the higher difference in the rates (12 versus 6 percent in contrast to 8.66 versus 12 percent).
- Priority upgrades for the GST TE estimates:
  I. Update taxable shares of commodities in SUTs (exempted, zero-rated, taxable at 6 percent, or taxable at 12 percent) in collaboration with the National Bureau of Statistics.
  II. Refine allocation of GFCF by industrial sector; account for share of residential construction and revisit allocation using depreciation of fixed capital.
  III. Account for GST registration threshold by matching GST taxpayer database with business income taxpayer database to analyze value-added of unregistered businesses by sector.
  IV. Review assumptions on input tax credit refunds: current model assumes no delays; if refunds are not issued the model can understate GST.
  V. Reflect timing issues for GST and CAPEX: model currently assumes immediate claimability of input tax on CAPEX; should be finetuned to reflect claiming over 3 (or more) years for CAPEX > MVR 500K and treat timing delays as negative tax expenditures.
  VI. Regularly review and update growth factors and projections based on aggregated GST data and taxpayer databases.

*Source: IMF staff (chapter content provided).*

### 55.      Installing the appropriate institutional setting for reporting on TEs is critical to

### Installing the appropriate institutional setting for reporting on TEs is critical to

### Institutional setup and responsibilities
- Purpose: ensure the integrity of the estimates of Tax Expenditures (TEs).
- Institutional setup should:
  - enable the relevant team (typically the tax policy unit at the MoF) to access and validate the necessary data on a regular basis;
  - ensure that the estimation and reporting of TEs are shielded from any potential manipulation of the definitions of TEs or the data and methodology used for the estimation.
- Interim arrangement (given TPU early stage of development):
  - a joint MoF-MIRA task force (headed by the MoF) can assume responsibility for estimating TEs and updating the models.
- Capacity building:
  - The analytical capacity of the TPU should be further developed.

### Reporting frequency, legal basis, and coverage
- Typical practice: With a few exceptions, countries report annually on TEs, typically in conjunction with the annual budget.
- Legal practice: Many countries adopt a legal requirement to produce TEs.
- Recommendations for the Maldives:
  - start reporting annually the TEs in the BPT and GST and gradually expand to other taxes;
  - as data become available, TEs in the PIT should be estimated and reported;
  - future work area: international tax aspect—e.g., including an estimate of the revenue implication of deviations from the statutory non-resident withholding tax rate (WHT) on cross-border interest, dividends, rents, royalties, and management fees.

### Reporting content and methodological caveats
- Minimum reporting elements for each TE item:
  - title and brief description,
  - legal reference,
  - type of tax,
  - type of measure.
- Additional reporting elements (illustrated by Box 2 example from Canada TE report (2021)):
  - source of data,
  - reference to the estimation model,
  - number of beneficiaries (i.e., the number of taxpayers that benefit from this TE item, which could be also expressed as a ratio to total taxpayers in this tax category),
  - historical TE estimates and projections (denoted by (P)).
- Caveats about estimation assumptions:
  - recommended to caveat the estimation assumptions at the beginning of the TE report;
  - many countries, including the models discussed in this report, compute TEs using a static method: the estimated direct revenue effect assumes that all other factors remain unchanged—i.e., no account of potential change in taxpayer’s behavior, or general equilibrium effects on the macroeconomy (e.g., a particular tax expenditure in the income tax may affect the level of consumption).
  - several countries include background tax statistics in the TE report.

### What TE estimation is not
- The exercise of estimating TEs is:
  - neither a normative analysis nor a compliance gap analysis.
- Separate analyses required:
  - effectiveness and efficiency of TEs in achieving their intended goals require a separate devoted analysis from the mechanical estimation of TEs.
  - measuring revenue not collected due to noncompliance requires a revenue administration gap analysis, and is beyond the exercise of estimating TEs.
- Comparability caveat:
  - TEs are not comparable across countries due to different assumptions about the Benchmark and differences in the designs of the tax system.

### Recommendations (as presented)
- Further build the capacity of the TPU.
- Estimate and report TEs on an annual basis.
- Set up the institutional arrangement to protect the integrity of the estimates of TEs, and:
  - Form a joint MoF-MIRA task force (led by the MoF) mandated with maintaining the needed data and further improving the estimation of TEs.
  - Ensure access to reliable data regularly.
  - Develop a template for reporting TEs in line with international best practice.
- Gradually expand the TE estimation and publication to cover additional areas, including:
  - the personal income tax.
  - revenue impacts of international aspects (e.g., from cross-border withholding taxes).

### GST-specific details and key figures
- Estimated Maldives GST Paid by Commodity and Category of Taxpayer (2014, MVR million)
  - Non-Durable Goods: Tourists 16.19; Households and NPISH 221.53; Governments 0; Exempt Businesses 93.09; Total 330.82
  - Semi-Durable Goods: Tourists 0; Households and NPISH 61.493; Governments 0; Exempt Businesses 10.541; Total 72.034
  - Durable Goods: Tourists 0; Households and NPISH 106.03; Governments 15.72; Exempt Businesses 193.92; Total 315.67
  - Construction: Tourists 0; Households and NPISH 36.18; Governments 110.30; Exempt Businesses 131.37; Total 277.85
  - Accommodation, food and beverage services: Tourists 3198.84; Households and NPISH 67.41; Governments 0; Exempt Businesses 19.65; Total 3285.91
  - Other services: Tourists 95.732; Households and NPISH 172.55; Governments 15.156; Exempt Businesses 107.85; Total 391.29
  - Total 3310.77 (Tourists); 665.22 (Households and NPISH); 141.17 (Governments); 556.43 (Exempt Businesses); Total 4673.60
- Estimated Maldives GST Paid by Commodity and Category of Taxpayer (2020, MVR million)
  - Non-Durable Goods: Tourists 6.08; Households and NPISH 367.28; Governments 0; Exempt Businesses 99.78; Total 473.14
  - Semi-Durable Goods: Tourists 0; Households and NPISH 69.16; Governments 0; Exempt Businesses 7.64; Total 76.80
  - Durable Goods: Tourists 0; Households and NPISH 118.97; Governments 57.12133; Exempt Businesses 131.70; Total 307.79
  - Construction: Tourists 0; Households and NPISH 107.78; Governments 400.6643; Exempt Businesses 89.33; Total 597.78
  - Accommodation, food and beverage services: Tourists 2382.38; Households and NPISH 55.62; Governments 0; Exempt Businesses 30.37; Total 2468.38
  - Other services: Tourists 96.65; Households and NPISH 308.79; Governments 33.97053; Exempt Businesses 102.98; Total 542.40
  - Total 2485.11 (Tourists); 1027.63 (Households and NPISH); 491.7561 (Governments); 461.81 (Exempt Businesses); Total 4466.32

- TEs in the GST, by Goods and Services (MVR mln; Percent of total tax collected)
  - 2014: Total GST TE 744 6.9%
    - Lower 6% GST Rate 604 5.6%
    - Zero-rated goods and services 230 2.1%
    - Exemptions -14 -0.1%
    - Small business registration threshold: Not estimated -- Data not available
    - No excess input GST refunds: Not estimated -- Data not available
  - 2020: Total GST TE 3,457 42.6%
    - Lower 6% GST Rate 1,981 24.4%
    - Zero-rated goods and services 487 6.0%
    - Exemptions 362 4.5%

- Detailed results for GST zero-rating by good and service (selected items)
  - Agri/horticulture and market gardening: 31 0.3% (2014); 133.6 1.6% (2020)
  - Live animals and animal products (exc. meat): 5 0.0% (2014); 21.7 0.3% (2020)
  - Fish and other fishing products: 40 0.4% (2014); 166.0 2.0% (2020)
  - Coke oven, refined petroleum products: 91 0.8% (2014); 94.0 1.2% (2020)

- GST exemption TE by good and service (selected items)
  - Total exemptions: -14 -0.1% (2014); 362 4.5% (2020)
  - Electricity, town gas, steam and hot water: -41 -0.4% (2014); 47 0.6% (2020)
  - Medical and timing appliances *: 6 0.1% (2014); 6 0.1% (2020)
  - Financial and related services: 55 0.5% (2014); 27 0.3% (2020)
  - Real estate services: -28 -0.3% (2014); 290 3.6% (2020)
  - Telecommunication services: -24 -0.2% (2014); 0 0.0% (2020)
  - Interactions**: 14 0.1% (2014); -13 -0.2% (2020)
  - * Corresponds with "medical appliances, precision and optical instruments, watches and clocks" in the SUT.
  - ** There are interactions that are captured when all interactions are removed at once, but not captured when removing exemptions in isolation.

### Lists (GST Act)
- List of Exempt Goods in the GST ACT:
  - Electricity;
  - Water;
  - Postal Services;
  - Sewerage;
  - Services complementary to electricity, water, sewerage and postal services;
  - Education
  - Health Care
  - Drugs and Medical Devices
  - Sale of goods received as donations by a non-profit body
  - Financial Services
  - Rent from immovable property
  - International transportation services
  - Day care services

- List of Zero-Rated Goods in the GST ACT (Essential goods listed in Schedule 1 of the GST Act):
  - Goods and services exported from the Maldives
  - Transfer of business as a going concern
  - Essential goods listed in Schedule 1 that are zero-rated includes:
    - Rice, sugar and flour
    - Salt
    - Milk
    - Cooking oil
    - Eggs
    - Tea leaves
    - Deep sea fish, reef fish, all types of fish packed in the Maldives, and rihaakuru
    - Potatoes and onions
    - Ingredients used in making curry paste (cumin, fennel, coriander seed, turmeric, garlic, ginger, chili, chili powder, cinnamon, cardamom, peppercorn, and any other such ingredient)
    - Dhiyaahakuru, kaashi, kurun’baa, rukuraa, and kurolhi
    - Carrots, cabbage, beans and tomatoes
    - Fruits
    - Bread, buns and rusk
    - Baby food
    - Baby diapers and adult diapers: all kinds of baby diapers and adult diapers, including cloth diapers, are zero-rated
    - Cooking gas, diesel and petrol: cooking gas, diesel and petrol are zero-rated. However, other fuel oils such as kerosene and jet fuel are not zero-rated (lubricating oils are also subject to GST at the standard rate).
    - Sanitary napkins, tampons, menstrual cups and other such products.

*Source: IMF staff estimates and content from the provided document.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1mdvea2021002.pdf_