MAURITIUS NATIONAL BUDGET ANALYSIS. Betting on Spending

Transcription

1 MAURITIUS NATIONAL BUDGET ANALYSIS Betting on Spending

2 The successful implementation of his maiden budget speech as Prime Minister and Minister for Finance and Economic Affair, will probably go down as a defining moment for the leadership of the Honorable Pravind K Jugnauth. Against a backdrop of continued global geopolitical uncertainty, the spectre of protectionism, and a perception of fading support from his electorate, he quite simply has to improve the lives of his people. Generating economic growth and prosperity that percolates through all the strata of the society within the relatively short timeframe (twenty-four months before the next general elections) is unprecedented and daunting. We sum up below the key drivers of the proposed inclusive prosperity plan:- Capital Expenditure The magic bullet essentially entails significant capital expenditure aimed at upgrading the country s infrastructure whilst keeping a portion of the debt off the State s balance sheet via the use of preference shares. The spending spree will be financed to a large extent by US$1bn, a combination of grant, credit lines and soft loans from the Government of India. Whilst the Metro Light Railway will account for the lion share of the spending, significant investments are being planned for the port, improvement of the road infrastructure, and construction of smart cities and business parks. Improved agency co-ordination and stimulating innovation The setting up of the Economic Development Board that will regroup economic planning, promotion and licensing should improve consistency of policy and execution efficiency thus improving the ease of doing business in Mauritius. The Prime Minister will also set up under his aegis a National and Social Economic Council which is aimed at improving the dialogue between the public and private sector. A number of institutes are being set up that will spearhead research and development in various fields ranging from bio technology to promotion of academic research. Fiscal incentives are also envisaged to encourage R&D and innovation. Economic Diplomacy Africa is again targeted as a market as bilateral cooperation and capacity building are being pursued with a number of African partners including Zambia, Kenya, Madagascar and Senegal. The Mauritius Africa Fund is a partner in a special economic zone in Senegal with a similar model being implemented in Ivory Coast. The finalisation of the Comprehensive Economic Cooperation and Partnership Agreement with India will be pursued in addition to free trade agreement with China and with the European Free Trade Association. Fiscal incentives to bolster sectoral growth Exports have and will remain the key driver of economic growth in view of the relatively modest domestic market. Reducing the corporate tax rate on profit from exports of domestic companies to 3% (previously 15%) is not only bold but will also go some way in allaying concerns over Mauritius s preferential tax treatment of global companies. A number of incentives including 8 year tax holiday for new companies engaged in the manufacturing of pharmaceutical products, high tech and medical devices has been introduced. The same fiscal concession will be extended to new companies involved in innovation driven activities in respect of income from intellectual property assets. Redistribution and fiscal fairness A negative income tax has been implemented for low income earners and it will result in a maximum contribution from Government of Rs1,000 (US$30) per month based on a scaling system. A solidarity levy of 5% has been imposed on income earners earning chargeable income plus dividends of more than Rs3.5m (US$100,000) per annum. The highest personal income tax rate was 15% regardless of amount earned whilst dividends from companies which are tax resident in Mauritius, were previously exempt from income tax. Our views The budget relies to a large extent on one premise, the Keynesian Consensus that the state can borrow and invest practically ad infinitum and the elusive multiplier will kick into play this is a significant gamble, even more in light of significant contingent and unbudgeted claims that the Government may have to fund. Even assuming the merits of this strategy, the ability to execute on such diverse and large scale projects will be key, bearing in mind that the implementation rate (measure of actual spend as % of budgeted spend) has averaged 60% over the last 3 years. The initiatives to simplify the licensing and setting up of businesses are welcomed and key to enhancing the competitiveness of the jurisdiction. Whilst leveraging our trade, cultural and geographical ties with Africa to promote Mauritius will be crucial to the development of the financial services sector. More could have been done to encourage research houses focused on Africa to be housed in Mauritius and initiatives to nurture and foster domain African expertise. The continued lack of a clear strategy for the global business sector in the light of the OECD initiatives is disappointing. Finally despite the unemployment rate of 7.3%, employment creation remains a key challenge. It is unclear from this budget how this will be addressed. SAFYR UTILIS P a g e 2

3 MACRO ECONOMICS INDICATORS GDP GROWTH The focus of the Mauritian Government since 2016 has been on building a strong framework for economic revival, boosting the country s GDP growth rate from 3.2% in 2015/16 to 3.9% in the financial year 2016/17, a growth rate not achieved since 2011/12. New budgetary measures as announced in the Budget Speech aim to further increase the Mauritian GDP growth to 4.1% for the financial year 2017/ % 5.3% GDP growth rates 4.5% 3.9% 3.4% 3.6% 3.4% 3.6% 3.9% 4.1% 3.2% UNEMPLOYMENT Unemployment rate in Mauritius has fallen to 7.3% in 2016 compared to 7.9% in the previous year. The situation is expected to further improve in 2017, as a result of higher government spending in education, training and skills development whereby a more qualified and skilled workforce is expected to meet the needs of our labour market. However no unemployment rate target has been set. 7.6% Unemployment rates 7.9% 8.0% 8.0% 7.8% 7.9% 7.2% 7.3% 7.3% INFLATION The headline inflation rate has decreased from 1.3% in year 2015 to 1.0% in 2016, the lowest rate since year 1987 (0.6%). This may be partly due to falling commodities prices such as groceries, electricity, fuel and arguably to the decrease in interest rates on housing loans on the supply-side. However, subdued demand might also have contributed to the low inflation. Inflation rate 9.7% 2.5% 2.9% 6.5% 3.9% 3.5% 3.2% 1.3% 1.0% SAFYR UTILIS P a g e 3

4 INVESTMENT Investment has had a positive outlook reflected in a growth rate of 5.7% in 2016 after several years of contraction. Investment rate, defined as the ratio of investment to GDP at current market prices has increased to 17.6% in 2016, from 17.4% in Private sector investment rate continues to be low at sub 13%. Public sector investment in 2016 represented 4.8% of GDP at market prices compared to 4.7% in Public investment is expected to further increase in 2017 with the implementation of construction and infrastructure projects announced in the current budget. Investment as a % of GDP at market prices 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Private sector investment Public sector investment Per capita Gross National Income (GNI) at current market prices- in '000 PER CAPITA INCOME As stated in the Budget 2017/18 speech, the aim of Mauritius is to become a high income country by 2023, with a per capita income of around USD 13,600 against its current level of USD 9, BUDGET DEFICIT AND DEBT As regards to budget outlook for 2017/18: Total expenditure is expected to reach Rs billion, of which Rs billion for recurrent expenditure, and Rs 18.8 billion for capital expenditure (including Rs 3.1 billion from the Build Mauritius Fund). Total revenue should increase to Rs billion in 2017/18, of which Rs 92.3 billion from tax receipts, Rs 6.9 billion from external grants and Rs 5.7 billion from closure of the two Special Funds. The overall budget deficit is expected to fall to Rs 15.5 billion, representing 3.2% of GDP compared to the 3.5% of budget outturn for 2016/17. Budget Outlook FY 2016/17 (as at June 2016) Budget Outturn FY 2016/17 Budget Outlook FY 2017/18 Total expenditure Rs Billion Rs Billion Rs Billion Total revenue Rs Billion Rs 94.7 Billion Rs Billion Budget deficit as a % of the GDP 3% 3.5% 3.2% SAFYR UTILIS P a g e 4

5 ECONOMIC DIPLOMACY KEY INITIATIVES Embassies and consulates will focus on export and investment driven diplomacy and consolidation of diplomatic footprint Bilateral cooperation to be enhanced with a number of countries including Cote D Ivoire, Ethiopia, Ghana, Kenya, Madagascar and Zambia, focus on trade, investment and capacity building Mauritius-Africa Fund will inaugurate its first venture in a special economic zone development in Senegal whilst it has secured preferential access to a biotechnological and ICT special economic zone in Ivory Coast The Mauritius Africa Fund will establish a Business and Investment Platform for Africa aimed at facilitating joint projects Ongoing negotiations with China and Europe for Free Trade Agreements whilst Comprehensive Economic Cooperation and Partnership Agreement with India will be finalized. OUR POINT OF VIEW The legislative framework of The Zone Franche de la Biotechnologie et des Technologies de L Information et de Communication ( ZBTIC ) in Ivory Coast emanates from the Act No of 30 August 2004 of which section 31 provides for a list of tax exemptions which can be enjoyed by Mauritian businesses set up in the Zone. Those exemptions include the following: Exemption from corporate tax for the first five years of operation - after which the corporate tax rate is 1% on profits Exemption from utilities consumption tax Exemption from taxes imposed on services provided to companies based in the ZBTIC Exemption from customs duty and value added tax Companies based in the ZBTIC are also not subject to exchange control and can repatriate funds easily. Mauritian companies should not pay any additional taxes in Mauritius on dividends receivable from underlying investee companies in ZBTIC. The normal corporate tax rate in Ivory Coast being 25% and now reduced to nil for the promotion of the Ivory Coast economy, Mauritian companies can claim tax sparing tax credit such that there should be no residual taxes in Mauritius on the dividend receivable. Unfortunate that there are no initiatives to: Actively pursue investment protection agreements with key African partners Finalise a number of pending tax treaties so as to remove fiscal uncertainties on cross border transactions SAFYR UTILIS P a g e 5

6 IMPROVED CO-ORDINATION AND STIMULATING INNOVATION KEY INITIATIVES Setting up of the Economic Development Board ( EDB ) that will regroup economic planning, promotion and licensing The Prime Minister will also set up under his aegis a National and Social Economic Council which is aimed at improving the dialogue between the public and private sector A number of institutes are being set up that will spearhead research and development in various fields ranging from bio technology to promotion of academic research Utilities connection costs for new businesses to be reduced whilst approval from various utility providers will not be required in designated areas Board of Investment to carry a process review of various permits that involves various ministries Investments for the upgrade of various training facilities Innovator Occupation permit introduced to attract innovative startups TAX MEASURES Tax incentives for Research and Development (R&D) Accelerated depreciation of 50% on capital expenditure incurred in R&D projects A deduction of 200% for 5 years on qualifying R&D expenses pertaining to the company s business which is carried out in Mauritius Qualifying expenses to include staff costs, consumable items, computer software used directly in the R&D and subcontracted R&D. Double Tax Deduction A deduction of 200% for 5 years on a company s expenses incurred on deep ocean water air conditioning bill against its taxable profits Similar incentive on expenses incurred on the acquisition and set up of a water desalination plant OUR POINT OF VIEW EDB should improve consistency of policy and efficiency of execution thus also improving the ease of doing business in Mauritius. Tax incentives for Research and Development: This measure aims at attracting companies engaged in R&D to set up substance based operations in Mauritius and therefore would exclude holding companies. Only R&D carried out in Mauritius would benefit from this incentive. The amendment to the Income Tax Act ( ITA ) 1995 should clearly define what innovation, improvement of a process, product or service would be eligible to the incentive measures. The double deduction may trigger tax losses which would lapse after 5 years. We hope that tax losses arising due to R&D expenses, be carried forward indefinitely as it is the case for capital allowances. R&D companies may require services from foreign experts. The incentive measures could have been extended to exemption from Deduction of Tax at Source on payments made to specialist foreign service providers. This measure could have reduced the cost of R&D in Mauritius. Other incentive measures could have included VAT refunds on R&D expenses incurred where such expenses do not relate to the existing trade or business. SAFYR UTILIS P a g e 6

7 FISCAL INCENTIVES TO BOLSTER SECTORAL GROWTH KEY INITIATIVES High Tech Clinic trials act to include testing of medical devices 8 year work permit policy for expatriate workers in export manufacturing oriented enterprises Sugar and non sugar Bringing back cane under cultivation target 500 H in 2017/18 Macadamia cultivation to be encouraged via grant and local research Increase in price of green tea leaves Bio farming encouraged via financing of set up costs Subsidy for bio pesticides Tourism Improving access and connectivity with Asia and Scandinavian countries Hotels to allow to host gaming machines Non Mauritian acquiring a residential property for less than US$500,000 will be entitled to a multi entry visa Financial Services Focus on quality of product offerings rather than only fiscal advantages All stake holders to participate in the elaboration of a blueprint for the sector 2 out of 6 substance requirements to be met as opposed to 1 currently SEM to encourage and develop market for multi-currency bonds Mauritius to be positioned as a Fintech hub Minimum capital requirements of bank to be raised from Rs200m (US$6m) to Rs400m (US$12m) existing banks to be granted 2 years SAFYR UTILIS P a g e 7

8 Digital Economy Reduction of 15% in prices of International Private Leased Circuits and Global Multiprotocol Label Switching Data protection Act to be aligned with EU data protection regulation Set up of integrated cloud computing platform Mauricloud as a platform for issuance and verification of documents in a digital way SMEs An Innovator Occupation Permit will be introduced for innovative start-ups with a minimum operational expenditure of 20% for R&D purposes Innovation Box Regime for Intellectual Property assets which are developed in Mauritius Setting up of two 3D Printing Service Centres at the National Computer Board to support manufacturing firms, university students and start-ups SMEs and cooperative societies will be given dedicated space in four new market fairs to market their products An SME e-platform will be set up to provide more visibility to SME products To further help SMEs and cooperatives improve the marketing of their manufacturing products, Government will contribute Rs 5,000 towards the costs of membership in the Made in Moris label An Export Financing Facility will be introduced to assist manufacturing enterprises in the SME and cooperative sectors. This will include, amongst others, loans at concessionary rates The SME Venture Capital Fund which was established last year is now operational. It will provide equity financing in projects by local SMEs Government will continue to guarantee the loans made to SMEs under the two financing schemes which are operated by commercial banks. Since 2015, banks have disbursed a total amount of Rs 3.2 billion under these schemes DBM will provide finance to SMEs at the interest rate of 6%. In addition, the interest rate on its loans to micro enterprises is being brought down from 6% to 3% An amendment will be made to the Code Civil Mauricien and the Code de Commerce to allow the use of all movable assets as loan collaterals CEB will implement a new scheme for solar PV for small commercial businesses. Under this scheme, the initial investment cost for the installation of a 2 kw solar PV will be financed by CEB. Fifty per cent of the investment will be paid back by the small enterprises over a period of 24 months through a net metering scheme. Thus, the enterprise will have the benefits of consuming electricity free of charge and exporting any surplus electricity generated to the CEB grid Government will relax the criteria and speed up the processes for SMEs and cooperatives to employ foreign labour Government is providing Rs 100 million over the next three years for the implementation of the 10-Year Master Plan for the SME Sector To better support the SMEs and as recommended in the 10-year Master Plan for the SME Sector, SME Mauritius will be set up to replace SMEDA OUR POINT OF VIEW Reducing regulatory burdens for GBL Companies listed on the SEM The Stock Exchange of Mauritius ( SEM ) is a key platform for Mauritius to leverage itself as a capital market of substance. It is therefore critical that the SEM reviews on a regular basis its own policies for listing of new companies on the exchange with the objective to raise capital and enhance liquidity within the continent. It is also important for the SEM to regularly review existing ongoing obligations of such companies once they are listed, in a view to balance efficiency of their operations with a solid regulatory framework. As a result, GBC 1 companies which are listed on the SEM and having dual listing on another equivalent exchange will no longer need to register a Prospectus with the Financial Services Commission in respect of a Right Issue. This initiative will allow such companies to have a greater flexibility to raise capital for their respective projects using a simple and efficient method, eliminating the requirement to go through a burdensome regulatory approval process. SAFYR UTILIS P a g e 8

9 Enhancing the specialist debt instrument market listed on the SEM The SEM has throughout the years been one of the most innovative markets in the region, being the only exchange in Africa able to offer listing and settlements in various currencies. In order to re-enforce its product offering, the SEM is now offering companies to list multi-currency bonds with the ability to engage with Euro clear for settlement purposes. This will have for objective to promote the debt market in Mauritius both locally and internationally by opening more avenues to unlock liquidity in the trading of those instruments. The SEM is already a platform which has traditionally attracted investors interests and this initiative promotes even further the ability of the SEM to innovate with a view to attract even further liquidity on the Stock Market. Strategy for the financial services sector It is unclear how these measures will lead to permanent employment creation, especially for the youth. The continued lack of clear strategy for the financial services sector is disappointing. We would also have welcomed a consistent strategy towards treaty negotiations and implementation of OECD measures. The Blue Print should include a clear path for orderly transition from the current treaty based jurisdiction to a more inclusive IFC. Digital economy The growth rate of the ICT sector has come down to 6% from 10% previously. Fostering innovation and encouraging R&D are expected to stimulate growth. Whilst the reduction in bandwidth costs should support outsourcing operations, the transition to a higher value proposition will inevitably have to encompass a significant upgrade in our human capital. SMEs Potentially reducing costs of borrowing and facilitating access to funding will be welcomed by SMEs. Further support in terms of incubation and clustering would have provided an additional impetus. TAX MEASURES Exempt Income Interest income received by individuals or corporates on Green bonds issued to finance renewable energy projects would be tax exempt. This should reduce the cost of borrowing for green projects. 3% Reduced rate of Corporate Tax on Exports of Goods Reduced corporate tax of 3% on profits of any company engaged in the exportation of goods. Tax credit on investments in new plant and machinery would be granted on a pro-rata basis. Income Tax Holiday 8 year income tax holiday to companies incorporated after 8th June 2017 engaged in the manufacture of pharmaceutical products and medical devices Similar incentive to companies engaged in the exploitation and use of Deep Ocean Water for providing air conditioning installations, facilities and services; and Companies involved in innovation driven activities where the IP assets are developed in Mauritius (this measure was announced in the Budget Speech but was not included in its Annex). Unrelieved Income Tax losses Unrelieved income tax losses carried forward do not lapse for a manufacturing company in the event of a change of more than 50% in its ownership if the change is in public interest and there is a safeguard of employment. SAFYR UTILIS P a g e 9

10 Property Taxes Hi-Tech Manufacturing Activities Registration duty and Land Transfer Tax will not apply on the transfer of a building or land used for qualifying Hi-Tech manufacturing activities Lease of agricultural land Registration duty will not apply to a small planter on the lease or sub-lease agreement of land for agricultural use not exceeding 10 hectares Stamp duty of Rs 150 only will apply on the transfer Lease of land and building for operating a health institution The registration duty exemption extended to lease or sub-lease of immoveable property for operating a health institution in addition to the acquisition and construction of a health institution Invest Hotel Scheme Exemption from land transfer tax on leasehold rights in state lands on the first purchase of an immovable property will now include a resale Real Estate Development The processing fee of an application for acquisition of a property under the Property Development Scheme is doubled to Rs 20,000 Non-citizens investing USD 500,000 or above in the Invest Hotel Scheme will be eligible for a residence permit as long as the ownership of the unit is maintained Remission/ Refund of Duties and Taxes Registration duty, Land Transfer Tax and Tax on Transfer of leasehold rights in State Land will be reduced or refunded where No effective change in ownership of an asset has taken place An application is made for an existing exemption within a year from when the deed was registered More than one document is needed to be registered to complete a transaction Customs Duty Customs duty removed on importation of all animal feeds except for poultry and pet Incentive also extended to scaffolding, shuttering and propping equipment used by contractors Furniture Customs duty removed on knocked-down furniture imported for smart city project to encourage local industries in value added processing and assembly whereby 20% local value should be added Import by post and courier services Exemption threshold increased from the first Rs2,000 to Rs3,000 for goods imported by post or courier Motor Vehicle purchased by Trade Union Confederation Customs duty removed on the purchase of a 15-seater van by a Trade Union Confederation Tea Growers Excise duty removed on the purchase of a single or double space cabin vehicle by a small tea growers SAFYR UTILIS P a g e 10

11 VAT New equipment have been included in the list qualifying for the VAT Refund scheme. Land Conversion Tax The Land Conversion Tax exemption for the creation of 18 holes golf courses will now be applicable to 9 holes golf courses as well OUR POINT OF VIEW 3% reduced rate of Corporate Tax on exports of goods The incentive is aimed to promote exports of goods and should help in boosting export oriented businesses. Where companies have benefited from a tax credit on the spinning, dyeing, weaving or knitting machinery, the said credit would be prorated. We do not know at this stage how the pro rata would be calculated. Before the introduction of this incentive, only companies holding a Category 1 Global Business Licence under the Financial Services Act 2007 ( GBL1 ) were subject to tax at the maximum effective tax rate of 3% after taking into account of the presumed foreign tax credit of 80%. It would appear that the Government wishes to put domestic companies on similar footing and eliminate discriminatory tax practices which is in line with the recommendations of OECD Base Erosion and Profit Shifting ( BEPS ) Action Plan 5. We would have wished to see such incentives be extended to service oriented domestic companies which provide cross border services. This would have put export service oriented companies on similar footing and enhance the competiveness of Mauritius in the global services industry. The tax regime of Global Business Companies It has been announced that the tax regime of the Global Business sector would be changed to meet international requirements. We expect that in view of the OECD BEPS Action plans and the various multilateral instruments to which Mauritius is signatory or has agreed to be a signatory, it will result in additional substance requirement, as detailed below. Going forward, companies holding a GBL 1 would be required to satisfy at least 2 (instead of 1 previously) of the following conditions to obtain a Tax Residence Certificate: The Applicant has office premises in Mauritius The Applicant employs on a full time basis at administrative/technical level, at least one person who is resident in Mauritius The Applicant s constitution contains a clause whereby all disputes arising out of the constitution shall be resolved by way of arbitration in Mauritius The Applicant holds assets (excluding cash held in bank account or shares/interests in another company holding a Global Business Licence) worth at least USD 100,000 in Mauritius The Applicant s shares are listed on a securities exchange licensed by the Financial Services Commission of Mauritius The Applicant has yearly expenditure in Mauritius which can be reasonably expected from any similar company which is controlled and managed from Mauritius The aim of this measure is to increase substance in Mauritius. However, several countries have now strengthened their Place of Effective Management ( POEM ) rules in the view to secure taxation in their country. Recently India has introduced regulations on POEM such that foreign companies might be treated as tax resident in India should their POEM be in India. This global trend may expose Mauritian companies to cross border jurisdictional dispute regarding tax residency. Therefore satisfying these 2 conditions is unlikely to be sufficient in the medium to long term. SAFYR UTILIS P a g e 11

12 A holistic approach by Mauritius including its own set of condition for all Mauritius resident companies (i.e. both domestic and global business) to qualify as having their POEM in Mauritius should be established. This may require an amendment to our Income Tax Act which would mitigate any risk of challenge in the interpretation of the tie breaker provisions in our tax treaties. Income Tax Holiday The 8-year tax holiday which will be granted to companies engaged in the manufacture of pharmaceutical products and exploitation and use of Deep Ocean Water aims to attract investors in such activities. However, we hope that tax losses incurred during the period of exemption would still be carried forward. Unrelieved income tax losses Accumulated Income tax losses would no longer lapse for manufacturing companies upon a change in shareholding of more than 50%. This is subject to the conditions that safeguard of employment are complied with and the change in shareholding is in the public interest. Prior to this amendment, the accumulated losses would have lapsed on a change in shareholding of more than 50%. A manufacturing company excludes a company engaged in the manufacture of alcoholic drinks or tobacco products and a company engaged in the restaurant business. Remission/Refund of Duties and Taxes This measure is welcomed and adds more fairness to transactions which could have led to multiplicity of transfer taxes. However, this process may be quite lengthy and tedious as the cases would be vetted both by the Ministry of Finance & Economic Development and the Registrar General which shall then submit their recommendation to the Minister. Unfortunately, the Land (Duties and Taxes) Act does not allow taxpayers to apply for a ruling to the Registrar General in the view to obtain more certainty on tax implication of a transaction. This would have reduced the potential for litigations on that point. SAFYR UTILIS P a g e 12

13 CAPITAL EXPENDITURE KEY INITIATIVES Metro Express project launched in September Transport network to benefit from Rs4.9bn (US$140m) over next 3 years Highlands city to house governmental offices and other multipurpose complex financed by support from Government of India Rs3.6bn (US$100m) over 3 years Ebene city to be upgraded Launch of a number of smart city projects Port to be upgraded total of Rs4.6bn (US$130m) OUR POINT OF VIEW The underlying premise of our capital expenditure is that it will significantly contribute to GDP growth. The ability to execute on such diverse and large projects will be key and a significant uptick in the implementation rate will be required The use of preference shares to keep Government borrowing off the State s balance sheet and exclusion from public sector debt could be construed as a colorable device SAFYR UTILIS P a g e 13

14 REDISTRIBUTION AND FISCAL FAIRNESS KEY INITIATIVES Construction of social and low income housing units amounting to Rs1.8bn (US$52m) and further Rs5bn (US$144m) over the next 3 years. TAX MEASURES Negative Income Tax Financial support to individuals in full time employment earning less than Rs 9,900 a month from the Government in form of a negative income tax ranging from Rs 100 to a maximum of Rs 1,000 per month depending on the amount of the monthly income (See Appendix 1) Monthly income should include overtime, leave pay and any other employment related allowances but excludes travelling allowances and year-end bonuses The grant is payable bi-annually starting 1 January 2018 provided the following conditions are met: The individual has been in continuous employment for at least 6 months The employers and employees are compliant with the NPF and NSF contributions The total taxable income of a couple including dividend and interest does not exceed Rs 30,000 Income Exemption Thresholds (IETs) Existing IETs increased by Rs 5,000-15,000 depending on the bands New band for an individual with 4 children or more has been introduced, representing an increase in exemption of Rs 45,000 (See Appendix 2) Deductions for household employee wages Maximum deduction of Rs 30,000 from an individual s taxable income Deduction cap of Rs 30,000 for a couple Relief subject to compliance to social security contributions of the employees Relief for medical/ Health Insurance premium Deduction for medical or health insurance premium increased from Rs 12,000 to Rs 15,000 for both the taxpayer and his first dependent and from Rs 6,000 to Rs 10,000 for each of his two additional dependents Corporate Social Responsibility Companies would continue contributing 50% (instead of 75%) of their CSR fund to the MRA till SAFYR UTILIS P a g e 14

15 Exempt Income Financial assistance from the government to disabled persons such as invalidity pension and carer s allowance will be tax exempt Solidarity levy A solidarity levy of 5% to be paid by an individual on dividend income in excess of Rs 3,500,000 (USD 100,000) made up of his or her chargeable income plus dividends. OUR POINT OF VIEW Negative Income Tax From an intrinsic point of view, the Negative Income Tax ( NIT ) system is a mirror image of a regular tax system. In lieu of paying more taxes which behave positively with income under the conventional tax system, beneficiaries of the NIT will receive payments based on the benefit-reduction schedule. In other words, it will behave inversely to income. The NIT welfare system introduced by the Government will be a welcomed initiative in the fight against poverty. The success of which however, will depend on other poverty reduction programs which should be aimed towards education, training, health and access to housing among the few. These programs should supplement the NIT by encouraging the targeted low income earners to spend their extra earnings judiciously in view of raising their quality of life. Otherwise, the predicted benefits of the NIT on the poverty gap may turn out to be a lost cause. It is expected that the NIT will act as a work incentive since only full time workers will have access to its benefits. However, this precondition may be detrimental to those who cannot work and also part time working mothers. On the other hand, there is another school of thought which suggests that the NIT could trigger work disincentives and ultimately have labour supply effects (i.e people might choose to work less in order to be eligible for the NIT). Based on the Mauritian working population survey as at January 2017 (546,600 employees), around 150,000 persons would be entitled for the NIT, which broadly represents 27% of our workforce. It would therefore be premature to discredit the NIT merely on the labour supply effect s approach. The introduction of the NIT would cost around Rs 1.3 billion. Whether this estimate includes the administrative costs associated to NIT is still unknown as we can only presume that the infrastructure and manpower required to administer the NIT would be quite significant. The success of the NIT will no doubt be contingent to the effectiveness of its administration. The selection of those who are eligible and the investigations into the returns and affairs of the beneficiaries which may result in delays in receiving the benefits. Solidarity Levy In 2011, a Solidarity Income Tax of 10% was introduced and was applicable on dividends and interest income. But only one year after its implementation, the Solidarity Income Tax was removed in its entirety. The Solidarity levy of 5% will only apply to dividends. This should include distributions made by companies and could also extend to the following: Distribution made to a unit holder by a unit trust scheme, Distribution out of net profits made by a collective investment scheme, Any distribution to a beneficiary of trust, Share of profits to associates of a non-resident société, Share of profits to associates of a société where the income of the société is made of dividends receivable from Mauritian companies; Distribution to a beneficiary of a foundation. In a few rulings issued by the Mauritius Revenue Authority, the latter confirmed that part of the share buyback made out of retained earnings should be construed as dividend. As a result, such dividends could also be subject to the Solidarity Levy. Dividends receivable from foreign companies should not be subject to the Solidarity Levy since these are usually included in the company s chargeable income. SAFYR UTILIS P a g e 15

16 The ITA defines the term dividends as a distribution made out of retained earnings, after making good of any accumulated losses at the beginning of the accounting period, either in cash or in shares to its shareholders. Given that dividends made by way of shares are non-cash transactions, we hope that same would be excluded from the scope of the Solidarity Levy. Given that the objective of the solidarity levy is to reduce inequality, we believe that the Solidarity Levy should not apply to dividends payable to foreign shareholders. This was the case for the Solidarity Income Tax. Individuals who have applied for a resident permit under the occupation route or under the investor s route may be subject to the Solidarity Levy should their chargeable income plus dividends exceed Rs 3,500,000. This may be a deterrent to the residency schemes and we recommend that such group of individuals be excluded from the scope of the Solidarity Levy. The amount of dividends which would be subject to the Solidarity Levy would depend on the amount of chargeable income derived in an income year. Chargeable income is defined in ITA as taxable income (excluding exempt income and capital gains) after deduction of the income exemption threshold. This would therefore include emoluments, income from any business and interest income unless these are expressly exempt in ITA. We believe that even if an individual does not derive chargeable income, the person may still be subject to the Solidarity Levy should the total dividends exceed Rs 3,500,000. The Solidarity Levy would only apply on the excess dividends. Computation of the Solidarity Levy Scenario 1 Scenario 2 Scenario 3 Taxable Income 3,000,000-4,000,000 Income Exemption Threshold (Assuming no dependent) (300,000) (300,000) (300,000) Chargeable Income 2,700,000-3,700,000 Dividends 1,200,000 4,500,000 1,200,000 Sub-Total 3,900,000 4,500,000 4,900,000 Less Solidarity Levy Threshold (3,500,000) (3,500,000) (3,500,000) Sub-Total 400,000 1,000,000 1,400,000 Solidarity Levy at 5% 20,000 50,000 70,000 Tax on chargeable income 405, ,000 Total tax payable 425,000 50, ,000 Effective tax rate (excluding Solidarity Levy) 9.6% 0% 10.7% +0.5% +1.1% +1.3% Effective tax rate (including Solidarity Levy) 10.1% 1.1% 12.0% SAFYR UTILIS P a g e 16

17 OTHER FISCAL MEASURES First time buyer exemption Exemption of registration duty to first time buyers of an ex-cha residence or a residence originally acquired by the NHDC Excise Duty Alcoholic and Tobacco Products (See Appendix 3) Value Added Tax Security patrolling and monitoring systems integral to a burglar alarm system will be zero-rated VAT exemption extended to a third party constructing a building exclusively being built to be leased to a provider of tertiary education and to a company constructing a charitable institution VAT claw back provisions included in above cases where building has been put to another use Enhancing Control on Gambling Activities Every licensee, other than a collector or operator of dart games has to prepare and submit to the Gaming Revenue Authority and the MRA, an audited financial statement in accordance with the IFRS within 6 months of closing of account Mauritius Cane Industry Authority The Rs 40 contribution per litre of absolute alcohol produced by a local distiller-bottler from cane and cane products will be applied to similar import products The MRA Customs will henceforth collect the contribution from distillers-bottlers or importers instead of the Mauritius Sugar Syndicate Deduction for solar energy units Businesses would be able to deduct expenditure incurred on solar energy units from their taxable income. This measure was announced in the Budget Speech but was not included in its Annex. OUR POINT OF VIEW The increase in the Income Exemptions Thresholds and Medical/health insurance premiums should be a welcomed measure. The tax deduction for household employees would encourage employers to contribute to social security contributions and could reduce the maximum tax payable by Rs 4,500 per annum. SAFYR UTILIS P a g e 17

18 TAX ADMINISTRATION General Re introduction of the Tax Arrears Payment Scheme which will be applicable to assessments raised or tax returns submitted before 1st July Up to 100% waiver on interests and penalties due provided that the taxpayer agrees by 31st March 2018 to settle his debt by 31st May The Alternative Tax Dispute Resolution Panel s jurisdiction will henceforth hear cases where the assessed amount involved is in excess of Rs 10M pursuant with the Gambling Regulatory Authority Act, the PAYE & Tax Deduction at Source sections of the Income Tax Act and any decision taken by the MRA The MRA will allow for the submission of written statements of cases before assessing the need for a hearing at the Assessment Review Committee ( ARC ). This process aims at reducing the number of cases heard by the ARC. Additionally, the ARC will look to fix case hearings within 2 months from the date a representation is lodged and give a decision only 4 weeks from the end of the hearing In line with the process for companies in liquidation, repayment priority in favour of the MRA will be extended to include companies in receivership for the outstanding payment of PAYE, TDS and VAT Income Tax The MRA will be empowered to request an Annual Statement of Financial Transactions from banks, insurance companies and non-bank deposit taking institution where there has been a transaction of more than Rs 500,000 or a deposit in excess of Rs 4M during an income year Companies will be required to submit to the MRA a list of individuals earning dividends of more than Rs 100,000 during a year Deduction of Tax at Source: Elimination of DTS on royalty income for artistic or literary work derived by a Mauritian Elimination of DTS for sociétés or successions with annual turnover not exceeding Rs 6M DTS of 15% will be withheld in lieu of PAYE if director fees are paid to the employer of a director instead of directly to the director DTS will be applied to any company awarding construction contracts irrespective of its level of turnover High Net Worth Individuals The statement of assets and liabilities for high net worth individuals will now require the disclosure of the assets of the person s spouse and dependent children Assets costing less than Rs 200,000 will be excluded from the disclosure requirement Following the first submission of the statement of assets and liabilities, the High Net Worth Individual will only need to report major additions to his net assets and those of his spouse and dependent children SAFYR UTILIS P a g e 18

19 Non-citizens falling in the high net worth individual category will no longer be required to submit a statement of assets and liabilities Wrongful disclosure will constitute an offence under the law Henceforth, all companies will need to submit their income tax and PAYE returns electronically. Both citizen and non-citizen employees will need to furnish their identification number to their employer instead of the latter seeking a Tax Account Number from the MRA An individual will be treated as tax resident should he or she spend at least 225 days during the year 30 June 2017 and the preceding 2 years in Mauritius Elimination of income tax return filing for a person acquiring a high value immovable property, a motor vehicle or pleasure craft Contributions to superannuation funds providing unreasonable benefits to selected employees will henceforth be disallowed for income tax calculations A person liable to income tax and deriving pension from a pension scheme or other emolument may choose to apply PAYE as a withholding tax on his pension or emolument instead of filing it independently Amendments to the relevant policies and legislations will be made to empower the MRA in its role for the enforcement of the exchange of information agreements signed by Mauritius VAT Mandatory VAT registration for all wholesalers of alcoholic drinks Possibility for online submission of objections to VAT assessments The penalty for failure to submit VAT returns increased from Rs 50,000 to Rs 100,000 Bad debts incurred can be accounted for in the tax return of the year in which it was written off The MRA may, without the authorisation of the Independent Tax Panel, raise assessments to 4 years Introduction of penalties for failure to use or for tampering with an Electronic Fiscal Device meant to transfer information to the MRA Advertisements Regulation Act Introduction of penalties for owner of illegal advertising structures Registrar General s Department The Arrears Payment Scheme will be re-introduced for a year, under which a full waiver of penalties will be granted for debtors, subject to the following conditions: Tax arrears are due as at 8th June 2017; and The debts are paid by 31st May 2018 The registration and taxation treatment of pre-sale agreements drawn before a notary will be similar to those drawn under private signature The Registration Duty exemption applicable on housing loans of up to Rs 2M will be extended to loan agreements drawn by a notary OUR POINT OF VIEW Deduction of Tax at Source ( DTS ) A DTS of 15% would apply on payments made to companies which provide directorship services. Typically this could include management companies in the global business sector. However, this position needs to be clarified since the DTS would be applied in lieu of PAYE which may suggest that the legislator might be aiming to close a loop hole whereby directors use a personal service company to avoid the payment of PAYE. SAFYR UTILIS P a g e 19

20 Appendix 1: Negative Income Tax Negative Income Tax Monthly Amount Yearly Amount (i) An employee earning Rs 5,000 in a month: 1,000 12,000 (ii) An employee earning above Rs 5,000 but not exceeding Rs 7,000 in a month: 800 9,600 (iii) An employee earning above Rs 7,000 but not exceeding Rs 9,000 in a month: 500 6,000 (iv) An employee earning above Rs 9,000 but not exceeding Rs 9,750 in a month: 250 3,000 (v) An employee earning above Rs 9,750 but not exceeding Rs 9,900 in a month: 100 1,200 Appendix 2: Income Exemption Thresholds Income Exemption Thresholds From To Increase (i) Individual with no dependent 295, ,000 5,000 (ii) Individual with one dependent 405, ,000 5,000 (iii) Individual with two dependents 465, ,000 10,000 (iv) Individual with three dependents 505, ,000 15,000 (v) Individual with four or more dependents (NEW) 505, ,000 45,000 (vi) Retired/ disabled person with no dependent 345, ,000 5,000 (vii) Retired/ disabled person with dependents 455, ,000 5,000 Appendix 3: Excise Duty Excise Duty Alcoholic Products Current New Beer (per litre) Spirit cooler (per litre) Fruit wine (per litre) Made wine (per litre) Wine of grapes (per litre) In bulk for bottling purposes In bottle Champagne (per litre) Rum (per litre of absolute alcohol) Cane spirits (per litre of absolute alcohol) Whisky (per litre of absolute alcohol) In bulk for bottling purposes In bottle 1, , , , Liqueur (per litre of absolute alcohol) Excise Duty Tobacco Products Current New Cigars (per kg) 16,056 17,662 Cigarillos (per thousand) 9,375 10,313 Cigarettes (per thousand) 4,646 5,111 SAFYR UTILIS P a g e 20

21 SAFYR UTILIS LTD 7 th Floor, Tower 1, NeXTeracom Cybercity Ebene Republic of Mauritius Tel: Fax: Web: contact@syul.mu The information presented in this note does not constitute and should not be construed as accounting, legal or tax advice. It is intended to provide a general overview of the subject which it treats. We recommend that your accounting, legal or tax expert be consulted for any specific advice which you may require in light thereof. The source of information remains largely the announcements made by the Minister of Finance and Economic Development in his budget speech. The measures announced may however change upon enactment SAFYR UTILIS Regulated by the Financial Services Commission of Mauritius and accredited with the Chartered Institute of Taxation (UK) as Chartered Tax Adviser SAFYR UTILIS P a g e 21