Budget Analysis Leading the Mauritian economy in a challenging era. 14 June 2018

Transcription

1 Budget Analysis Leading the Mauritian economy in a challenging era 14 June 2018

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3 Pursuing our Transformative Journey Mauritius Budget June 2018 Charting towards a high-income, inclusive society The Finance Minister, Honourable Pravind Kumar JUGNAUTH delivered his third Budget Speech, fourth of the present Government, with the overall objective of further transforming Mauritius into a high-income inclusive economy. He faces the challenging task of steering the economy in a context of growing uncertainties and challenges, both domestic and global, characterised as well by heightened expectations from all segments of the Mauritian society. On the global front, divergence of views on trade issues at the G7 summit in Canada last week combined with mounting trade tensions between the US and China raises the risk of a revival of trade protectionism, which would not be in the interest of Mauritius. The decision of the Fed to raise its benchmark interest rate by 25 basis points this Wednesday coupled with clear signals for further hikes over the next year, intensifies the need for open economies like Mauritius to monitor capital outflows closely. Domestic challenges include the increasingly apparent economic growth stagnation in the range of 3 percent 4 percent since 2011, a sustained surge in headline inflation from 1 percent in January 2017 to 5 percent in March 2018 driven by core inflationary pressures and a stabilisation of private investment to GDP at a low of 17 percent since The prevalence of high consumption with considerable import content, increasing frailty of traditional export pillars despite continued targeted assistance and preferential exchange rates, and changes to the Global Business environment warrant the attention of the authorities. Other es 3

4 Against the background of the above challenges, the budget aims to achieve inclusive growth and prosperity for all residents through poles of development and related policies. These include providing the youth with the necessary skills to facilitate their integration into the labour market, promoting the use of innovative technologies through Artificial Intelligence, Fintech and Blockchain, expanding the export sector through additional Preferential Trade Agreements with India, China and Middle East, and modernising the public infrastructure. In addition, importsubstitution mechanisms will be implemented in the cane and ocean economy sectors, through customs duty and subsidy, as well as where dumping is practised. The reform of the global business sector undertaken through the introduction of a new harmonised fiscal regime for Global Business and domestic companies along with capacity-building initiatives, announces a new era where substance, innovation, range and quality of service offerings shall determine the future of this industry as a pillar of the economy. The include abolition of deemed foreign tax credit, introduction of 80% partial exemption regime for specified income and the phasing out of GBC2s. This demonstrates Government s commitment to address challenges from OECD and concerns of the European Union. ation of banks will be revisited, with no distinction made between Segment A and Segment B income. Firms participating in the development of Special Zones under the Africa Strategy will benefit from tax holidays, while the SME sector is the recipient of financial and non-financial incentives in order to promote entrepreneurship and employment. In order to achieve greater fairness and inclusiveness, the tax rate on middle-income earners has been reduced to 10%, access to finance has been eased and substantial investment in education will be made. Special emphasis has been laid on the need to tackle gender gaps and introduce Other es 4

5 gender considerations at all levels of policymaking and implementation. Other that will be welcome include a reduction in petrol prices and, against all expectations, water tariffs as well as excise duties on cigarettes and alcoholic drinks have not been increased. The budget deficit, which has evolved in a stable range of 3 percent 3.5 percent of GDP since 2013, is estimated to maintain course at 3.2 percent for financial year 2017/2018. Public sector debt, which was at 64.8 percent of GDP at June 2017, is estimated to decline to 63.4 percent of GDP at June Achievement of the declared intention of the policymaker to reduce public sector debt to 60% of GDP by 2020/2021 will notably depend on the ability of the economy to post higher growth, and whether or not contingent debt items guaranteed by Government materialise. This budget encompasses a wide range of packages and incentives addressed to key productive sectors, including agro-industry, ocean economy, tourism, financial services, advanced manufacturing and the digital economy. In view of the time lag between the adoption of policies, and their impact on growth, rapid implementation is important for achieving higher growth in the short-term. Other es 5

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7 *Sources: Statistic Mauritius, Bank of Mauritius, MoFED, Reuters and Bloomberg *Sources: Statistic Mauritius, Bank of Mauritius, MoFED, Reuters and Bloomberg Click 2018 to Highlights add heading Growth rate (%) Headline Inflation Rate (%) Other es * Financial year ending June * Sources: Statistic Mauritius, Bank of Mauritius, MoFED, Reuters, Bloomberg and Budget Speech 2018/2019 7

8 Click 2018 to Highlights add heading Unemployment Rate (%) Other es * Financial year ending June * Sources: Statistic Mauritius, Bank of Mauritius, MoFED, Reuters, Bloomberg and Budget Speech 2018/2019 8

9 Click 2018 to Highlights add heading Contribution to GDP (%), 2017 Growth rate by sector (%), 2017 Education Real Estate Activities Professional, Scientific & Technical Activities Human Health & Social Work Activities Manufacturing ICT Wholesale & Retail Trade Other es Tourism Construction Financial and Insurance Activities * Sources: Statistic Mauritius, Bank of Mauritius, MoFED, Reuters, Bloomberg and Budget Speech 2018/2019 9

10 Click 2018 to Highlights add heading 63.4% 3.2% 6.6% 17.5 Other es Public Sector Debt (% of GDP) June 2018 Budget Deficit (% of GDP) June 2018 Current Account Deficit (% of GDP) 2017 FDI (MUR B) 2017 * Sources: Statistic Mauritius, Bank of Mauritius, MoFED, Reuters, Bloomberg and Budget Speech 2018/

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13 Key Measures New Regime Deemed foreign tax credit abolished for: - GBC1 as from 31 December Banks as from 1 July 2019 Introduction of partial exemption of 80% for all companies, except banks, on specified income as follows: - Foreign source dividend - Profits attributable to foreign PE - Interest and royalties - Income from specified financial services Reduced tax rate of 3% extended to companies engaged in global trading activities Phasing out of GBC2 business regime as follows: - No GBC2 licence issued as from 1 January Holders of GBC2 licence issued prior to 16 October 2017 to benefit from tax exemption up to 30 June 2021 Banks ation of banks revisited with no distinction between Segment A and Segment B income. Introduction of new tax rates as follows: Chargeable Income Up to MUR1.5B 5% Rate Over MUR1.5B 15%* * Chargeable income in excess of MUR1.5B potentially entitled to reduced tax rate of 5% subject to conditions Special levy on banks extended for one final year up to 30 June 2019 Other es 13

14 Key Measures Freeport Removal of tax exemption for freeport operators and private freeport developers on export of goods Exemption from CSR contribution would continue to apply Holders of freeport certificate issued prior to 14 June 2018 to benefit from tax exemption up to 30 June % cap on local sales no longer applicable Deductions and Reliefs Employers under scheme entitled to: - 200% relief in respect of wage and salary costs for the first two years - Annual tax credit of 5% for three years on related IT investment Holidays 5-year tax holiday for Mauritian based project developers and project financing institutions for investments in SEZ infrastructure development 8-year exemption on income derived by companies under the 'Sheltered Farming Scheme 5-year income tax holiday on income derived from smart parking solutions and other green initiatives under the NRS Solidarity Levy Solidarity levy on telephony service providers extended to June 2020 with no requirement for book profit to exceed 5% of turnover Other es 14

15 CSR CSR now applicable for companies benefitting from tax holidays Offsetting of unutilised tax credit not allowed against CSR payable Companies allowed to retain additional amount up to 25% of CSR contribution upon approval by National CSR Foundation Other es 15

16 TDS TDS of 3% extended to payment of commission TDS on rent payable to a non-resident doubled to 10% Director fees not subject to TDS Other es 16

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18 Key Measures Special Levy for Banks Introduction of a special levy on net operating income derived by banks from their domestic operations Claw Back MRA now empowered to claw back refunded on capital goods (other than buildings) exceeding MUR100,000 in specific cases Property Developer under NRS Eligibility for a property developer to claim refund of on buildings, capital goods, professional fees and fit-out works of an approved project under NRS provided project completed within 2 years Other es 18

19 Exemption exemption extended to: All bus bodies built on chassis meant for public transport by holder of road service licence for the transport of general public Supply of manual labour by an individual to a -registered person operating in agricultural or construction sector Watch straps with exception of those made of precious or base metal Anti-smoking tablets Other es 19

20 Zero-rated Zero-rating extended to: Fees payable for examination of vehicles up to 30 June 2020 All components forming an integral part of a photovoltaic system Other es 20

21 Refund Scheme Extended to local artists registered with MASA on paid on musical instruments Available to a planter extended to include: Equipment - Branch Chopper - Handy Blower - Earth Auger - Irrigation Hose - Fogging Machine - Mini Tiller, including Blade Services - Land Preparation Works - Rental of land leased for agricultural purposes Other es 21

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23 Key Measures New Income Band Introduction of lower income tax band of 10% for individuals with annual net income up to MUR650,000 Rain Harvesting Investment Allowance New deduction to individuals for investment in rainwater harvesting system for houses Income on Winnings New final withholding tax of 10% on winnings in excess of MUR100,000 from Lotto, Loterie Verte, casinos and gaming houses IET for a Retired Person Retired person deriving annual emoluments not exceeding MUR50,000 also eligible to enhanced IET Exemptions Exemption threshold on lump sum received as severance allowance, pension or retiring allowance increased to MUR2.5M exemption extended to returns from sukuks Other es Interest Relief Interest relief extended to cover profit charge payable under a secured Islamic Financing Arrangement for construction of a house 23

24 Key Measures Increase in IET for all categories by MUR 5,000 as follows: Category A B C D E F G Applicable to Individual with no dependent Individual with one dependent Individual with two dependents Individual with three dependents Individual with four or more dependents Retired disabled person with no dependent Retired/disabled person with dependents Increased to (MUR) 305, , , , , , ,000 Additional deduction for tertiary education Increase in deduction in respect of dependent child pursuing tertiary education: From (MUR) To (MUR) Abroad 135, ,000 Mauritius 135, ,000 Other es 24

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26 Other es Excise Duty Exemption on single/double space cabin vehicle extended to planters in hydroponic activities Introduction of MUR2 per unit on nonbiodegradable disposable plastic containers as from 1 February 2019 Duty on buggies readjusted to 10% Full exemption on motor car for disabled person to replace reduced duty of 15% along with increase in qualifying cylinder capacity from 1450cc to 1600cc Other es 26

27 Other es Customs Duty Increased from 15% to 80% on import of sugar Removal of customs duty on acoustic doors and iron bars Exemption on imported blended oil replaced by 10% duty to align with rate on nonblended oil Exemption on: - goods imported in semi knocked-down condition provided that at least 20% value added completed domestically - importation of personal effects capped at MUR2M for foreign retirees Other es 27

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29 General No requirement to pay in excess of MUR150,000 on import of capital goods. Reporting in return maintained Electronic submission of consolidated list of taxable supplies to be disclosed in terms of serially numbered invoices SOAL No requirement to submit SOAL for individuals who have submitted their income tax returns for the last five years EDRTS EDRTS extended to assessments raised up to 30 June 2016 AEOI Penalties on failure to submit information for AEOI with other countries Return of Information Casinos, gaming houses and bookmakers/totalisators to submit a return of information to the MRA on wins exceeding MUR100,000 ARC Additional payment of 5% of amount assessed for making representations with ARC Other es 29

30 Customs & Excise Duty Customs Duty Ruling on classification or origin of goods subject to a time limit of 3 years MRA to refund taxes paid by importer on prohibited goods where such goods were subsequently exported -free allowance for incoming passenger increased to MUR30,000 for an adult and MUR15,000 for a child Compulsory payment of Environment Protection Fee on imported mobile phones, batteries for motor vehicles and tyres to be made at the time of clearance Excise Duty Amendments to land transfer tax and registration duty as follows: - Graduated penalty for undervaluation of immovable property is being halved - Imposition of penalty on difference between market value and declared value of property as follows: - 10% where the difference is between 10% and 50% - 25% where the difference exceeds 50% - Interest of 0.5% per month up to a maximum of 50% to apply on unpaid tax or duty Other es 30

31 AEOI ARC B CSR EDRTS FDI GBC1 GBC2 GDP ICT IET Automatic Exchange of Information Assessment Review Committee Billion Social Responsibility Expeditious Dispute Resolution of Scheme Foreign Direct Investment Holder of Category 1 Global Business Licence Holder of Category 2 Global Business Licence Gross Domestic Product Information and Communications Technology Income Exemption Thresholds M MASA MoFED MRA MUR NRS OECD PE SEZ SME SOAL TDS Million Mauritius Society of Authors Ministry of Finance and Development Mauritius Revenue Authority Mauritian Rupees National Regeneration Scheme Organisation for Co-operation and Development Permanent Establishment Special Zones Small and Medium Enterprises Statement of Assets and Liabilities Deduction at Source Value Added Other es 31

32 Twaleb Butonkee Senior Partner Deloitte Other es Roopesh Dabeesingh Partner Deloitte

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