Safyr Utilis Mauritius Budget 2016/17 Tax highlights

MAURITIUS NATIONAL BUDGET 2016-17 TAX HIGHLIGHTS
MAURITIUS NATIONAL BUDGET 2016-17
TAX HIGHLIGHTS

EDITORIAL
Bold Enough?
This is the first budget of the Minister of Finance and Economic Development, Honorable Pravind
Kumar Jugnauth against a backdrop of economic uncertainty with global growth forecast being
revised downward almost on a quarterly basis and the far reaching ramifications of Brexit a long
way from being unravelled.
Oil prices are at an all-time low thus dampening inflation (sub 2% and trending down), USD 353
million windfall as grant from the government of India over the next 4 years, are some of the levers
that the Minister currently has at his disposal to implement the Government's economic manifesto.
This leads us to the political and social economic context. The Government's popularity is
undermined by the sluggish economic activity with current GDP growth (3.5% against 5.3%
forecasted) subdued job creation (unemployment rate stuck at around 8%), private sector
investment 12.7% of GDP (20.5% in 2008), dwindling FDI (Rs 9.6Bn from peak of Rs 20.4Bn in 2012)
whilst the unclogging of the bureaucratic machinery, is still a work in progress.
Although the elections are not expected for another 3 years, the Minister and the Government
can afford and indeed were expected to be bold. The budget is built on ten pillars however the
crux and the most tangible engine of growth remains the Government spending spree as a way
to jolt the economy with the much needed spark. Total capital expenditure including the light
metro project and heritage city is expected to be 21% of GDP whilst the public sector is expected
to contribute 14,000 jobs. These two facts sums up the essence of the budget.
There are a number of measures that are welcomed, most notably:-
1. The consolidation of a number of public sector bodies and enterprises. This can only bolster
efficiency and in a number of instances, reduce the financial drain and improve accountability.
The Government's divestment from some non performing investments is also judicious and mostly
overdue;
2. The continued stride towards the creation of a fully-fledged digital society both in terms of
interactions with and among the public sector, in addition to improving connectivity and access
to the digital world is crucial to our competitiveness;
3. Improving the business landscape and framework by strengthening and widening the concept
of silent approval with the overall objective of streamlining permits and further opening up to
foreigners; and
4. Those measures aimed at alleviating poverty and democratizing home ownership.
We believe that the private sector should have been more involved in driving the growth strategy
both in terms of financial involvement in the significant infrastructure pipeline and in the operation
of some of these landmark project like the light metro. We had also hoped that since the
Government still has the political capital, implementation of some of the politically sensitive
initiatives like benefits targeting that would have resulted in a more efficient use of resources, for
the health, education and transport. The significant hike in public sector employees is also likely to
exacerbate the current pension deficit, which is yet to be tackled.
As for the rest, only time would tell, whether he has been bold enough in the measures. Let us
hope for bold execution.

PERSONAL INCOME TAXATION
SALIENT MEASURES WHICH HAVE BEEN ANNOUNCED
Tax allowances
 Income Exemption Thresholds (IET) have been increased by Rs 10,000 for all 6 IET bands
available.
 Tuition fees deduction for a child attending tertiary education has been reduced from Rs
44,500 annually to Rs 34,800.
 Interest payable on housing loans availed before 1 July 2006 would now be deductible.
 Annual income limit to benefit from the tuition fee and interest deduction has been
increased from Rs 2 million to Rs 4 million.
Permanent exemptions
 Emoluments derived by a seafarer employed on a local or foreign vessel would be
exempted from tax.
Temporary tax holidays
 An Asset and Fund Manager (AFM) licensed by the FSC and managing a minimum asset
base of USD 100 million would be exempted from personal income tax for a period of 5 years.
 A Foreign Ultra High Net worth individuals (UHNI) investing a minimum of USD 25 million in
Mauritius would be exempted from personal income tax for a period of 5 years.
CHANGES AFFECTING NATURAL PERSONS
SUMMARY OF TAX CHANGES
ANNOUNCED IN THE BUDGET SPEECH 2016

OUR POINTS OF VIEW
Our income tax rate of 15% remains relatively low and very
attractive compared to our neighbouring countries. In its recent
publication in April 2016 on Taxing Wages 2016, the OECD noted
that the average tax and social security burden in its member
countries was 35.9% in 2015 for a childless single worker. The
highest average tax burden for a childless income earner was
Belgium (55.3%) according to the same publication.
The African average individual income tax rate is 33.3% for 2016
which is more than the double of the Mauritian income tax rate.
It clearly positions Mauritius as a jurisdiction of choice to
welcome foreign talent and high net worth individuals.
The income tax exemption to seafarers is not novel. It was
removed in 2006 and is now being reintroduced to encourage
employment in the fishing industry.
The introduction of tax holidays is a strong call from the
Government to encourage AFMs and UHNIs into Mauritius. Our
income tax rate is already very low compared to other
jurisdictions and tax incentives coupled with other business
facilitation measures would help to convince high caliber AFMs
and UHNIs to be in Mauritius.
The provision of the Income Tax Act should clearly define the
asset base and investment threshold test. It is still uncertain
whether the tax holiday would be extended to officers of AFMs
which are structured as a company and also whether the tax
holiday would apply only to newly registered persons or would
be extended to existing AFMs and UHNIs. It is likely that a
business plan should be provided by the AFM or the UHNI to
benefit from the tax holiday. We believe that the asset and
investment threshold should be extended over a period of at
least three years, with may be a relaxed condition in the first year
of operation, to allow their businesses to take momentum.

PROPERTY TAXATION
ANNOUNCED IN THE BUDGET SPEECH 2016 (Contd.)
CHANGES AFFECTING NATURAL PERSONS (Contd.)
 Exemption from registration duty on acquisition of a new dwelling costing less than or Rs 6
million during the period from 1 September 2016 to 30 June 2020. The exemption would not
apply to properties on Pas Géométriques, Integrated Resort Scheme (IRS), Real Estate
Scheme (RES), Property Development Scheme (PDS) and Invest Hotel Scheme (IHS).
 The land value threshold for first time buyers to benefit from registration duty exemption is
extended from Rs 1.5 million to Rs 2 million; there would be no age restriction as from now.
 VAT refund scheme available to Mauritian buyers is being reviewed as follows: VAT refund
capped based on floor area, refund scheme extended beyond apartments, cost of
construction raised to Rs 4 million without restriction on size, refund amount increased to Rs
500,000, annual income threshold to benefit from the scheme now extended to Rs 2 million;
construction on top of existing dwelling falls within the scheme; construction must be
completed by 30 June 2020; scheme is not extended to properties on Pas Géométriques,
IRS, RES, PDS, IHS and Smart City Scheme.
 Exemption from registration duty on secured housing loans below Rs 2 million.

OUR POINTS OF VIEW
The above measures are aimed to give a boost
to the real estate sector in Mauritius. The
outcome of the measures announced may be
hindered however by unregulated real estate
agent fees and also notary fees (which are
capped under the Notaries Act) plus charges.
The VAT refund scheme seems to have a sunset
provision of up to 30 June 2020.

OTHER INDIRECT TAXES
CHANGES AFFECTING NATURAL PERSONS (Contd.)
 Reduction in customs tariff rates on 24 items to nil (See Annex).
 Increase in customs duty on sugar and spirituous drinks by 15%.
 Increase of nearly 10% in excise duty on alcoholic drinks and 25% on tobacco products.
 Excise duty of 3 cents per gram on milk based products with sugar content.
 25% levy on energy inefficient appliances.
 15% levy on pesticides.
 CO2 levy/rebate scheme is suspended on motor cars.
 Changes to excise duty rates on motor cars (See Annex); electric cars of up to 180 KW is
exempt from excise duty.
 Changes in the basis of import value of second hand cars; adjustment factor to market price
now 5% instead of 25% and depreciation allowance is lowered from 56% to 50%.
 Lowering of registration duty on electric cars except for those above 180 KW.
 VAT is removed on some 12 items (See Annex).

BUSINESS INCOME TAX
CHANGES AFFECTING LEGAL PERSONS
Temporary tax holidays
Global Business
 An 8 year tax holiday to Global Headquarters Administration companies subject to
employment and substance conditions being met.
 A 5 year tax holiday to Treasury Management Centre service companies subject to
employment and substance conditions being met.
 A 5 year tax holiday to UNHI.
 A 5 year tax holiday to law firms setting up their regional offices in Mauritius to provide legal
advisory and international arbitration services to global business clients.
 A 5 year tax holiday to investment banks.
 A 5 year tax holiday to Overseas Family Corporations.
Non Global Business
 8 year tax holiday to SME newly registered businesses.
 4 year tax holiday to existing SME businesses with a turnover of less than 10 million.
 An 8 year tax holiday to Industrial Fishing companies.
Tax credits
 An investment tax credit of 5 % per annum over 3 years on new plant and machinery
acquired by manufacturing companies: no limit on investment, no year restriction on carry
forward of unused tax credits, investment window is extended to income year 2019/2020.
 An enhanced investment tax credit of 15% per annum over 3 years would apply to
manufacturing companies engaged in specific activities and to companies investing in a
subsidiary company engaged primarily in the setting up and management of an accredited
business incubator capped at Rs 20 million investment.
Tax losses
 Transfer in losses on takeover or merger of a manufacturing company would now be
available even if the acquiree company remains in operation and the takeover is deemed
to be of public interest under the Land (Duties and Taxes) Act.

OUR POINTS OF VIEW
A general perspective on tax holidays and investment
tax credits
Tax incentives on their own sometimes can prove to
be inefficient. They may contribute to poor
investment climate, damage a country’s revenue
base and erode resources for real drivers of
economy.
In the Investor Motivation Surveys done by the
World Bank Group in 2013, it was highlighted that in
Tanzania, Rwanda, Uganda, and Burundi, over 90
percent of investors would have invested even if tax
incentives were not provided.
According to the Financial Times, the $1.1 billion
granted in tax exemptions in Tanzania in 2012 was
the same amount which the country borrowed from
China to build a 500 km gas pipeline.
In 2006, Mauritius made significant reforms in its tax
system by removing many tax holidays, investment
tax credits and incentives. However, according to the
IMF, FDI and corporate tax revenue still experienced
a strong growth.
It is apparent from the measures announced that
Mauritius is once again having recourse to traditional
tax measures to encourage investors.
Measures affecting the global business
The attractiveness of tax holidays for Global Business
Companies may be marginal given that the fact the
maximum rate of taxation for a Category 1 Global
Business License is 3% and Mauritius has a generous
foreign tax mechanism which may eliminate any
residual taxes in Mauritius.
In the light of various changes happening globally in
the tax environment in the likes of the OECD Base
Erosion and Profit Sharing (BEPS) Action plans, the
call for substance is becoming increasingly more
important. Tax holidays are not necessarily well
viewed and non-double taxation may exist whether
benefits of tax holidays are passed through to the
parent company and not consumed in the residence
country’s tax system. In the light of the BEPS Action
3, it is expected that countries would adopt a tighter
CFC legislation which would curb the benefits of tax
holidays should there be inadequate substance. It is
worth noting at this stage that Uganda recently
changed its income tax legislation effective as from 1
July 2016 to allow treaty benefits only to those who
satisfy substance requirements.
Law firms setting up regional offices in Mauritius, to
provide legal advisory and international arbitration
services, would be exempt from tax on their net
income for a period of 5 years. They should also have
access to tax treaties signed by Mauritius which
stand at 42 (partial DTA with Australia not included)
so far provided that they hold a Category 1 Global
Business License (Category 2 Global Business
Licensees do not have access to treaty benefits).
Holders of Category 1 Global business license are also
allowed to do business in Mauritius to some extent.
This measure should allow more competition locally
and also give access to greater international
exposure to our local legal advisers. However, to
allow those regional offices to give legal services
locally, there may be some amendments to be made
to current legislations.
In its 2016 budget , Singapore has reduced its
concessionary tax rate for Financial Treasury Centres
from 10% to 8% and extended its sunset clause for
this concession from 31 March 2016 to 31 March
2021 to increase its competitiveness in that space.
Singapore hosts more than 4,000 corporate treasury
centres; the tax incentives and also its extensive DTA
network has greatly helped to boost this product
offering. In addition to providing qualifying services,
an approved Financial Treasury Centre has a
minimum turnover threshold to achieve and employs
at least 3 professional staff.
Mauritius is well positioned to host regional
headquarters and treasury management companies
servicing Africa in view of its extensive treaty
network (15 DTAAs and 8 IPPAs with African
countries). Singapore has only 5 tax treaties so far
with Africa. South Africa still has the most extensive
of tax treaty network in Africa but its regional head
quarter regime is still limping.
It is expected that in terms of substance and
employment conditions, Mauritius would most likely
follow the Singapore model.

PROPERTY TAXATION
CHANGES AFFECTING LEGAL PERSONS (Contd.)
 The upper property value limit to benefit from exemption from land transfer tax is increased
from Rs 4 million to Rs 6 million.
 Exemption from land transfer tax for employer providing free social housing not exceeding
7 perches to his employee.
 The exemption would not apply to properties on Pas Géométriques, IRS, RES, PDS and IHS.

OTHER TAXES
CHANGES AFFECTING LEGAL PERSONS (Contd.)
 A supply of goods or service for VAT purposes would occur at the earlier of issue of invoice,
receipt of payment or at the time the supply occurs.
 List of items under the VAT refund scheme to small planters has been extended (See Annex).
 A 2% levy would apply on net stakes of all licensees regulated under the Gambling Authority
Act.
 A 30% levy would apply on online betting for non-residents and foreign punters.
 The betting duty for bookmakers operating outside the racecourse is increased from Rs
16,000 to Rs 30,000.

OUR POINTS OF VIEW
The change in the determination of the tax point
for VAT purposes would mainly affect
intercompany transactions which are often booked
as accruals in the financial statements at year end
without issuing invoices even if the supply of goods
or services have already been made.
As from now, intercompany charges would be
subject to VAT at the time the services or supply of
goods are made.
The time at which a service is performed or a
transfer of ownership in case of a supply of goods
would therefore be relevant. We recommend that
proper documentation be kept to support the time
of supply for example service agreements or Goods
Received Note. It should not be expected to see a
change in the time of supply for hire purchase
agreement and continuous supplies like rent.

ADMINISTRATION
TAX ADMINISTRATION
 Consolidation of social security contribution collection under the Mauritius Revenue
Authority (MRA).
 Integration of the Registrar General with the MRA.
 An Alternative Dispute Resolution (ADR) mechanism would be introduced for appeals
against assessments exceeding Rs 10 million; the panel is expected to be comprised of
independent persons and the applicant would follow the ADR route simultaneously with
appeals made to the ARC, the Supreme Court or the Privy Council.
 The term “fraud” would be defined to include non-submission of tax returns.
 A tax clearance certificate would now be issued by the MRA to contractors bidding for
government contracts exceeding Rs 5 million.

OUR POINTS OF VIEW
The choice to have recourse to the ADR route seems to be at
the discretion of the Director General of the MRA and the
established criteria to use the ADR route should be awaited.
This process should reduce the amount of tax cases at the
ARC and the Courts and possibly the time and costs incurred
by the MRA and the taxpayers to reach an agreement on
contentious issues.
The extension of the term “fraud” to non-submission of tax
returns in our tax legislation is a strong message to tax payers
who fail to submit their tax returns. We believe that late filing
of returns should not be included in the said definition unless
there is clear evidence that the late filing has been done in a
view to deceive.
Tax fraud would usually occur in the following situations:
 Intentionally fails to file an income tax return;
 Willfully fails to pay taxes due;
 Intentionally fails to report all income received;
 Makes fraudulent or false claims; and
 Prepares and files a false return.
A clear distinction should be made between negligence and
fraud so that careless errors fall outside the scope of fraud
and such errors would still be subject to penalties and
interests.

INCOME TAX
TAX ADMINISTRATION (Contd.)
 Deduction of Tax at Source (DTS) would apply on payments made to accountants, tax
advisers and management fees paid to individuals.
 A final tax of 10% would apply on payments to non-resident entertainers and sportspersons.
The obligation will also extend to an individual.
 The MRA would be allowed to request a Statement of Assets and Liabilities from high net
worth individuals with assets exceeding Rs 50 million or net income exceeding Rs 15 million.
 A time limit of 2 years would apply to submit an amended tax return.
 PAYE returns should include National Identity Number and should include exempt
employees as well. DTS returns should include Business Registration Number or National
Identity Number of the payee.
 A penalty would be introduced for losses and tax refund over claimed.
 A reduced penalty provision for late submission of tax return and payment of tax would
apply to individuals not in business.
 Disclosure of genuine point of law uncertainties can be disclosed in the tax returns to
mitigate penalties and interest.
 Only a declaration would be required from companies not in operation instead of an
income tax return submission. This would not apply to companies holding a Category 1
Global Business License and a Trust.
 Businesses will be required to contribute at least 50 percent of their CSR money to a National
Foundation which would be jointly managed by the public and private sector. The
contribution of 50% will be increased to 75% in the following year.

OUR POINTS OF VIEW
The Deduction of Tax at Source (DTS) rate on accountants
and tax advisers is likely to be 3% which would be aligned to
the current rate applicable to providers of services such as
architect, legal consultants and land surveyors. In cases
where the accounting and tax services are ancillary to a
service for example in cases of management companies
providing services to Global Business Companies, we are of
the view that the DTS should not apply. This needs to be
clarified once this measure is enacted.
The time limit of 2 years to amend a tax return is welcomed
and is aligned to international practice. It should be expected
that a submission of an amended return would extend the
time bar limit of 3 years to raise an assessment as from the
date the amended return is submitted.
The disclosure of point of law uncertainties in the tax return
would allow better communication between tax payers and
the MRA. The point of law should be genuine and should in
our view only apply in cases where the law is silent or matters
which the MRA has not issued a ruling or a practice note. We
believe that the level of information which should be
provided be similar to that as an application for a ruling made
to the MRA for e.g. the tax payer should state the reason
motivating his position. However clarity needs to be obtained
in cases where the MRA does not respond to the disclosure;
would that be a deemed agreement to the position taken by
the tax payer and/or can this position be relied upon by
another tax payer in similar circumstances?
The penalty for over claimed losses should in our view only
apply if the said losses reduce the chargeable income in the
subsequent years and therefore less tax would be paid.

VALUE ADDED TAX
 Non VAT registered would be required to collect VAT on services received abroad and remit
same to the MRA. Banks dealing wholly and exclusively with non-residents and licensees
under the Financial Services Act would be excluded from this requirement.
 A penalty of 20% on over claimed input VAT would be introduced. The penalty cannot
exceed Rs 100,000.
TAX ADMINISTRATION (Contd.)

OUR POINTS OF VIEW
Businesses engaged in exempt supplies (i.e. those which
cannot register for VAT) and those businesses whose
turnover is below the VAT registration threshold would now
be required to collect this VAT on services received from
abroad and remit same to the MRA. It would appear that
even businesses engaged in zero rated supplies and who
chose not to register for VAT would also be caught by this
provision. We believe that the VAT Act would be amended to
allow exempt businesses to register for VAT so that the VAT
can be remitted to the MRA.
The amount paid to the MRA would not be deductible for
VAT purposes and would therefore be a cost to the business.
However, where the VAT relate to a recurrent business
expense, the VAT should be allowed as deduction in
computing the business income tax payable.
We believe that a turnover threshold should be introduced
in the application of this measure. This principle would be
aligned to the UK VAT provisions which require a person
paying services abroad above a defined threshold to be
mandatorily required to register for VAT. This proposal would
reduce the administrative burden on small businesses and
those engaged in zero rated supplies.

DISCLAIMER
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
7th Floor, Tower 1, NeXTeracom
Cybercity Ebene
Republic of Mauritius
Tel: +230 403 4250 | Fax: +230 468 1178
Web: www.syul.mu
Email: contact@syul.mu

Safyr Utilis Mauritius Budget 2016/17 Tax highlights

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