budget analysis leading the mauritian economy in a ......mauritius into a high-income inclusive...

Budget Analysis Leading the Mauritian economy in a challenging era14 June 2018

©2018 Deloitte Mauritius 2

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©2018 Deloitte Mauritius

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Pursuing our Transformative JourneyMauritius Budget 2018 – 2019 14 June 2018

Charting towards a high-income, inclusive societyThe 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 2015. 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.


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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, import-substitution 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 measures 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. Taxation of banks will be revisited, with no distinction made between Segment A and Segment B income.

Firms participating in the development of Special Economic 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

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gender considerations at all levels of policymaking and implementation. Other measures 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 2018. 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.

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Economic Growth rate (%)

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Headline Inflation Rate (%)

* Financial year ending June

*Sources: Statistic Mauritius, Bank of Mauritius, MoFED, Reuters and Bloomberg*Sources: Statistic Mauritius, Bank of Mauritius, MoFED, Reuters and Bloomberg

* Sources: Statistic Mauritius, Bank of Mauritius, MoFED, Reuters, Bloomberg and Budget Speech 2018/2019


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Unemployment Rate (%)

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Contribution to GDP (%), 2017 Growth rate by sector (%), 2017



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63.4% 17.53.2% 6.6%

Public Sector Debt (% of GDP)June 2018

Budget Deficit (% of GDP)June 2018

Current AccountDeficit (% of GDP)

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Detailed tax measures• Corporate Tax

• VAT

• Personal Tax

• Others Taxes

• Tax Administration


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New Tax Regime• Deemed foreign tax credit abolished for:

- GBC1 as from 31 December 2018 - 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

2019- Holders of GBC2 licence issued prior to 16

October 2017 to benefit from tax exemption up to 30 June 2021

Banks• Taxation of banks revisited with no distinction

between Segment A and Segment B income.• Introduction of new tax rates as follows:

• Special levy on banks extended for one final year up to 30 June 2019

Corporate Tax

* Chargeable income in excess of MUR1.5B potentially entitled to reduced tax rate of 5% subject to conditions

Chargeable Income Tax Rate

Up to MUR1.5B 5%

Over MUR1.5B 15%*

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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 2021

• 50% cap on local sales no longer applicable

Deductions and Reliefs• Employers under “Work@Home” 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

Tax 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

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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


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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


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Key VAT 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 VAT

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 VAT on buildings, capital goods, professional fees and fit-out works of an approved project under NRS provided project completed within 2 years


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VAT Exemption

VAT 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 VAT-registered person operating in agricultural or construction sector

• Watch straps with exception of those made of precious or base metal

• Anti-smoking tablets


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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


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VAT Refund Scheme

• Extended to local artists registered with MASA on VAT 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


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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

• Tax exemption extended to returns from sukuks

New Income Tax 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 Tax on Winnings• New final withholding tax of 10% on

winnings in excess of MUR100,000 from ‘Lotto’, ‘Loterie Verte’, casinos and gaming houses

Interest Relief• Interest relief extended to cover profit

charge payable under a secured Islamic Financing Arrangement for construction of a house

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Increase in IET for all categories by MUR 5,000 as follows:

From (MUR) To (MUR)

Abroad 135,000 200,000

Mauritius 135,000 175,000

Category Applicable toIncreased

to (MUR)

AIndividual with no

dependent 305,000

BIndividual with one

dependent 415,000

CIndividual with two

dependents480,000

DIndividual with three

dependents 525,000

EIndividual with four or

more dependents 555,000

FRetired disabled person

with no dependent 355,000

GRetired/disabled person

with dependents465,000

Additional deduction for tertiary education• Increase in deduction in respect of dependent

child pursuing tertiary education:

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Excise Duty

• Exemption on single/double space cabin vehicle extended to planters in hydroponic activities

• Introduction of MUR2 per unit on non-biodegradable 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


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• 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 non-blended 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 Taxes

Customs Duty


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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

General

VAT• No requirement to pay VAT in excess of

MUR150,000 on import of capital goods. Reporting in VAT 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


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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

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

• Tax-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


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AEOI Automatic Exchange of Information

ARC Assessment Review Committee

B Billion

CSR Corporate Social Responsibility

EDRTSExpeditious Dispute Resolution of Tax Scheme

FDI Foreign Direct Investment

GBC1Holder of Category 1 Global Business Licence

GBC2Holder of Category 2 Global Business Licence

GDP Gross Domestic Product

ICTInformation and Communications Technology

IET Income Exemption Thresholds

M Million

MASA Mauritius Society of Authors

MoFEDMinistry of Finance and Economic Development

MRA Mauritius Revenue Authority

MUR Mauritian Rupees

NRS National Regeneration Scheme

OECDOrganisation for Economic Co-operation and Development

PE Permanent Establishment

SEZ Special Economic Zones

SME Small and Medium Enterprises

SOAL Statement of Assets and Liabilities

TDS Tax Deduction at Source

VAT Value Added Tax


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Twaleb ButonkeeSenior [email protected]+230 403 58 70

Roopesh DabeesinghTax Partner [email protected]+230 403 58 19

mailto:[email protected]

mailto:[email protected]

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