Budget 2018/2019 Our technical analysis and synopsis 15 June 2018 - EY

 
Budget 2018/2019 Our technical analysis and synopsis 15 June 2018 - EY
Budget
2018/2019
Our technical analysis and
synopsis
15 June 2018
Budget 2018/2019 Our technical analysis and synopsis 15 June 2018 - EY
Budget 2018/2019 Our technical analysis and synopsis 15 June 2018 - EY
1. Executive summary              Pg 3

    2. Personal income tax            Pg 4

    3. Corporate tax                  Pg 5

    4. Tax administration             Pg 9

    5. Value Added Tax                Pg 10

    6. Budget outturn and estimates   Pg 11

    7. Background                     Pg 11

    8. The 7 main strategies          Pg 12

3    Budget 2018/2019 | June 2018
Budget 2018/2019 Our technical analysis and synopsis 15 June 2018 - EY
1. Executive Summary

    This Budget Alert is based on the Budget Speech presented to
    the National Assembly by the Prime Minister, Minister of Home
    Affairs, External Communications and National Development
    Unit and Minister of Finance and Economic Development, the
    Honourable Pravind Kumar Jugnauth on 14 June 2018.
    This is the fourth Budget of the Minister under the present regime.
    It is a seven-pronged Budget which builds on the foundations
    laid in the previous Budgets. A number of measures are aimed at
    increasing the standard of living of fellow citizens and stimulating
    the agricultural sector.

    We welcome the various measures proposed to reform the financial
    and banking services sector in line with the international tax
    landscape. There would be major changes in the taxation regime of
    banks.

    The Work@Home scheme aims at raising productivity and
    increasing gender equality in the labour workforce and should be
    welcomed by the working population. The double tax deduction
    on wage and salary costs will act as an incentive for domestic
    companies to adopt this global concept. This measure is likely to
    encourage more women to join the labour workforce.

    The Minister did not raise the standard rate of Value Added Tax
    (‘’VAT’’), but instead removed VAT on a number of products. The
    reduction and removal of customs duty on a number of products
    would also reduce the taxable value for VAT purposes where the
    goods in question are standard rated.

    We are disappointed once again that a group relief provision
    was not introduced for income tax and VAT purposes although
    a number of representations have been made. Combined with
    the time limit on the utilisation of tax losses, this may lead to an
    unnecessary fiscal cost for a group of companies. We already
    have a group relief provision on intercompany transactions for
    land transfer tax and registration duty purposes. In the current
    economic conditions, a number of entities spanning a number of
    sectors are engaged in cost cutting strategies and a number of
    restructuring exercises are being made; such exercises are for bona
    fide commercial reasons.
    To conclude, this budget focuses on widening circles of
    opportunities, encouraging consumption of local products,
    rejuvenating the agricultural sector amongst others. Its success will
    depend on the extent to which the measures are implemented and
    applied bearing in mind their underlying objectives.

3     Budget 2018/2019 | June 2018
Budget 2018/2019 Our technical analysis and synopsis 15 June 2018 - EY
2. Personal income tax

Negative income tax supported by
national minimum wage
Employees with a monthly earnings of Rs 9,900 or less are entitled
to the Negative Income Tax (‘’NIT’’). The allowance would be based
on the monthly basic salary instead of total earnings as from 1 July
2019. However, an employee with a monthly total earnings over Rs
20,000 will not be eligible to NIT. The objective of the amendment
is to ensure that the NIT does not become a disincentive and at the
same time does not penalise employees performing overtime.
Some other conditions have been removed so that an employee
may be entitled to NIT. For example, he should not be required to be
a full-time employee, in so far as he works for at least 24 hours over
three days in a week. He will be eligible to the NIT as from the first
month of employment.
It is hoped that the measure will benefit society in the long run and
will have a catalyst effect for the individuals concerned.

Income exemption threshold (‘’IET’)
The basic Income Exemption Threshold has been increased by Rs
5,000 for all categories as depicted below:

                                              Current        Proposed

                                                        Rs

Individual with no dependent                 300,000         305,000

Individual with one dependent                410,000         415,000

Individual with two dependents               475,000         480,000

Individual with three dependents             520,000         525,000

Individual with 4 or more dependents         550,000         555,000

Retired/disabled person with no dependent    350,000         355,000

Retired/disabled person with one
                                             460,000         465,000
dependent

This measure will also impact on the exempt portion of the
retirement pension of Mauritian citizens living abroad. The
fact that the increase is based on a flat amount for all the IET
categories implies that the percentage increase will vary for each
categories.

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Budget 2018/2019 Our technical analysis and synopsis 15 June 2018 - EY
Rates of income tax                                                    Income tax on Winnings
    Individuals with yearly net income of Rs 650,000 will be taxed at a    Tax would now be withheld on betting gains where such amount
    rate of 10% instead of 15%.                                            exceeding Rs 100,000 obtained from “Lotto”, “Loterie Verte”,
                                                                           casinos and gaming houses.
    This measure seeks to alleviate the tax burden for the middle
    class people. Once the yearly net income exceeds Rs 650,000,           This is a new measure for taxing gains. The relevant entities
    the applicable tax rate would be 15% as the measure is not             will be required to remit the tax withheld and submit an annual
    an introduction of a progressive system of income tax. We              statement to the Mauritius Revenue Authority (‘’MRA’’).
    are disappointed to see that no amendment would be made
    to the solidarity tax introduced last year for certain resident
    individuals. It would appear that the measure applies to               Statement of assets and liabilities
    residents and non-residents and the nature of the income and its
    source would not be relevant.                                          The law will be amended so that the due date for the submission of
                                                                           the statement of assets and liabilities (‘’SAL’’) is extended by one
                                                                           year: the SAL would be submitted with the tax return for the year
    Additional deduction for tertiary                                      ending 30 June 2018 for the relevant individuals.
                                                                           A further amendment would be made so that the SAL would not
    education                                                              apply to an individual who has submitted his tax return during the
    The additional income exemption threshold for individuals with         last five years.
    dependents pursuing an undergraduate course is being increased
    from Rs 135,000 to Rs 175,000 where the undergraduate course           The amendments are welcomed. However, the practical challenges
    is pursued in Mauritius. Where the undergraduate course is             and data security should be discussed and agreed with the MRA
    pursued outside Mauritius, the threshold is being increased from Rs    for individuals who would be required to submit the SAL.
    135,000 to Rs 200,000.
    The percentage increase is more than 25% and this measure
    is consistent with the policy to increase the standard of living
                                                                           3. Corporate tax
    of Mauritius. We wish to emphasize that the individuals should
    ensure that they keep the relevant evidence.

                                                                           Deductions relating to staff members
    Rainwater harvesting
                                                                           working from home
    An individual investing on rainwater harvesting system will be
    allowed to deduct the total cost from his taxable income.              Employers would be able to claim twice the amount of their wage
                                                                           bills in relation to employees working under the work@home
    This is a measure which would encourage Mauritians to adopt the        scheme. Employers would also be eligible to an annual income
    “Maurice Ile Durable” policy and would encourage self-sufficiency.     tax credit (“ITC”) equivalent to 5% of the cost of investing in the
    Whilst the measure is welcomed, time will tell if the tax incentive    required IT systems. The ITC will be available for a maximum of
    has been sufficient to encourage individuals to invest in a            three years and is in addition to any annual allowances on such
    rainwater harvesting system.                                           assets. The Employment Rights Act will be amended to address the
                                                                           legal aspect of this proposal.
                                                                           This measure demonstrates the Government’s intention to
    Interest relief under Islamic Finance                                  promote the work at home philosophy. It appears that the
    Arrangement                                                            status of the employer is not relevant so that it may apply to an
                                                                           individual acting as an independent contractor. This philosophy is
    The profit charge payable under Islamic Financing Arrangement for      already in place in certain developed economies.
    the construction of a house would now qualify for interest relief if
    the arrangement is being secured on an immovable property.             Whilst the ITC applies for a maximum of three years, the double
                                                                           deduction for the wage bill would be restricted to the first 2
    This measure extends the scope of the interest relief. The             employment years. Employers should be able to demonstrate the
    measure seeks to place all individuals who borrow for the              time spent by the employees working at home to benefit from the
    purposes of a construction project on a level playing field.           above incentives: the legal arrangements between the employers
                                                                           and the employees should also reflect the time spent by the
                                                                           employees working at home.
    Exemption on termination payment for                                   We believe that a guideline should be issued to clarify on how
    employees                                                              the time spent by the relevant employees should be determined
                                                                           taking into consideration a number of economic factors.
    The exemption threshold on lump sum paid to an individual as form
    of severance allowance, pension or retiring allowance has been         The speech does not specify the commencement date for this
    raised from Rs 2,000,000 to Rs 2,500,000.                              measure and whether it would also apply to part-time and
                                                                           seasonal employees. The interaction of this measure with the
    The individuals in question would welcome this measure as the          double deduction for Rodrigues-based employees and disabled
    increase in the exempt portion is 25%. The effective tax savings       employees, the employment cost may be relieved four times for
    depend on a number of factors like the applicable IET and the          tax purposes.
    liability of the individual to the Solidarity Levy.

5      Budget 2018/2019 | June 2018
Budget 2018/2019 Our technical analysis and synopsis 15 June 2018 - EY
Cessation of the Category 2 Global
Business Licence (‘’GBL 2’’) regime
The Financial Services Commission (“FSC”) will cease to issue
Category 2 Global Business Licence as from 1 January 2019 and
a single Global Business Licence (“GBL”) will be issued by the FSC.
Companies holding a GBL2 Licence issued by the FSC prior to 16
October 2017 will be exempt from income tax until 30 June 2021.
It is further provided that the current income tax exemption for
companies holding a GBL2 Licence issued by the FSC on or after 16
October 2017 would be reviewed.
We believe that the amending laws should specify the basis for
computing any deductible expenses and annual allowances: it
would also be important to assess whether the Corporate Social
Responsibility (“CSR”) charge would apply for such companies.

Alignment of the taxation system for
companies holding Category 1 Global
Business Licences with domestic
companies
Companies holding a Category 1 Global Business Licence (“GBL1”)
under the Financial Services Act 2007 would no longer be able to
compute their foreign tax on the basis of the presumed foreign tax
amount. This measure would be effective as from 31 December
2018. A partial exemption regime will be introduced whereby 80%
of the specified income of Mauritian resident companies will be
exempt from tax: the specified income for this purpose includes the
following:
•   Foreign dividends and profits attributable to foreign permanent
    establishments;
•   Interest and royalties; and
•   Income from the provision of specified financial services.
In the event that the company holds a GBL 1, it will be required to
comply with pre-defined substantial activities so that its specified
income is exempt from tax. Where the partial exemption is not
available, the current credit system would continue to be applicable.
The effective date of 31 December 2018 implies that an
apportionment is required where the company does not have a
calendar year end.
It does not appear that companies currently holding a GBL1
will be required to make any CSR contributions. Moreover, the
income tax exemption on the payment of interests and royalties
to non-residents by companies holding a GBL1 still applies: the
exemption relating to interests on deposit and savings accounts
as well as trading profits on sale of securities would also apply. We
presume that amendments would have to be made to other laws
like the Companies Act and Value Added Tax Act as a result of the
change in the regulatory framework.
This measure aligns the taxation system for all Mauritian resident
companies and seeks to treat all residents on an equal footing.
The partial exemption regime provides for a unilateral exemption
of 80% for the specified income. Resident individuals may not be
able to claim such exemption on similar foreign income.

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Budget 2018/2019 Our technical analysis and synopsis 15 June 2018 - EY
Clarity is required on the interaction of the partial exemption with
the credit system. We believe that a company should be able to
apply the credit system if this is to its advantage. For example, in
the context of Indian sourced dividend income, the Indian Dividend
Distribution Tax is enough to eliminate the Mauritian tax on the
Indian dividends.
Care is required in the application of the proposed partial
exemption so that it does not have unintended consequences.
Worked examples should be discussed and agreed with all
stakeholders to achieve certainty in the implementation of this
measure.
It is uncertain if the partial exemption would apply to domestic
interest and royalty income.
The additional substance requirement for companies holding a
GBL has not been published yet and we believe that any such
additional requirement should be in line with the OECD Action
point 5.

Reduced corporate tax rate of 3% for
companies engaged in global trading
activities
The corporate tax rate of 3% currently applicable on the profits
made on exports would be extended to global trading activities
effected by companies.
The amending laws should define the activities that would be
treated as global trading: it appears that international trading of
goods should fall within its scope.
The commencement date of this measure has not been specified.
Although companies would be subject to a corporate tax rate
of 3%, companies other than those holding a GBL would still be
required to make CSR contributions.
The interaction of this measure with the tax that arises in the
country of source should be understood. Where the underlying
activities are performed outside of Mauritius, the arm’s length test
should not apply in Mauritius and would be the subject matter of
the jurisdiction where the economic activities are performed.

Investment tax credit
Companies importing goods in semi-knocked down form would
be able to claim an Investment Tax Credit (“ITC”) where at least
20% local value addition is incorporated therein: the ITC would be
computed at the rate of 5% of the cost of new plant and machinery
excluding motor vehicles and would be available for a maximum
period of 3 years. The ITC is available in respect of investment made
up to 30 June 2020.
This measure is comparable to the investment tax credit provided
in the Finance (Miscellaneous) Provision Act 2017 for the
production of certain categories of goods: this measure does
not provide for any limit on the amount of capital expenditure
incurred.
The treatment of any excess ITC should be clarified. However,
the qualifying expenditure which would be considered as “local
value addition” and the basis of computing the threshold of 20%
should be clearly defined to remove any doubts on its application:
it should be noted that this threshold may depend to a large
extent on the classification of the semi knocked down products for
customs duty and Value Added Tax purposes as well as the VAT
registration status of the company.

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Budget 2018/2019 Our technical analysis and synopsis 15 June 2018 - EY
Reduced corporate tax rate of 3% for                                    Solidarity Levy on Telephony Service
companies engaged in global trading                                     Providers
activities                                                              The solidarity levy for telephony service providers will apply till 30
                                                                        June 2020: the condition that the book profit should exceed 5% of
The corporate tax rate of 3% currently applicable on the profits
                                                                        its turnover for the liability to arise is being repealed.
made on exports would be extended to global trading activities
effected by companies.                                                  The base for the payment of solidarity levy is being widened to
                                                                        include all profitable telephony service providers irrespective of
The amending laws should define the activities that would be            the level of profit made.
treated as global trading: it appears that international trading of
goods should fall within its scope.
The commencement date of this measure has not been                      Corporate Social Responsibility
specified. Although companies would be subject to a corporate
tax rate of 3%, companies other than those holding a GBL would          Companies will not be allowed to offset any unused tax credit
still be required to make CSR contributions.                            against CSR payable. Companies which have been granted tax
                                                                        holidays will be required to contribute to CSR.
The interaction of this measure with the tax that arises in the
country of source should be understood. Where the underlying            We disagree with this measure on the basis that CSR is
activities are performed outside of Mauritius, the arm’s length         conceptually an income tax: a company should be able to relieve
test should not apply in Mauritius and would be the subject             any foreign tax against its total Mauritian tax charge on its foreign
matter of the jurisdiction where the economic activities are            source income. Any treaty provides relief for the full amount
performed.                                                              of domestic taxes arising on a foreign income in the recipient
                                                                        jurisdiction where such income has been subject to tax in the
                                                                        source country: to the extent that foreign taxes exceed the
Investment tax credit                                                   domestic income tax, no tax is payable in the recipient jurisdiction.
                                                                        The unavailability of a foreign tax credit against a CSR charge
Companies importing goods in semi-knocked down form would               would lead to an additional tax burden where domestic companies
be able to claim an Investment Tax Credit (“ITC”) where at least        are used in business structures. This measure discourages the use
20% local value addition is incorporated therein: the ITC would be      of domestic companies in cross border transactions
computed at the rate of 5% of the cost of new plant and machinery
                                                                         CSR is currently computed on the chargeable income of a
excluding motor vehicles and would be available for a maximum
                                                                        company: thus the chargeable income would have to be computed
period of 3 years. The ITC is available in respect of investment made
                                                                        even though a company is exempt from income tax.
up to 30 June 2020.
                                                                        The effective date for this measure has not been specified.
This measure is comparable to the investment tax credit provided
in the Finance (Miscellaneous) Provision Act 2017 for the
production of certain categories of goods: this measure does
not provide for any limit on the amount of capital expenditure          Scope of the Deduction of Tax at Source
incurred.                                                               (‘’DTS’’) mechanism
The treatment of any excess ITC should be clarified. However,           The scope of the DTS mechanism has been widened to include
the qualifying expenditure which would be considered as “local          commission: such payment will be subject to a withholding tax rate
value addition” and the basis of computing the threshold of 20%         of 3%. Additionally, the current withholding tax rate of 5% on rental
should be clearly defined to remove any doubts on its application:      payments would be increased to 10% where the recipient is a non-
it should be noted that this threshold may depend to a large            resident person.
extent on the classification of the semi knocked down products for
customs duty and Value Added Tax purposes as well as the VAT            The withholding tax on the payment of director fees to corporate
registration status of the company.                                     bodies would be abolished.
                                                                        We are of the view that the term “commission” should be clearly
                                                                        defined in view of its commercial meaning and widespread use in
Companies operating in the Freeport                                     a number of business transactions: in the context of cross border
sector                                                                  commission payment, the tax should not generally apply where
                                                                        the recipient is resident in a treaty partner country.
The income tax exemption currently applicable for Freeport
operators and Freeport developers on the export of goods will be
removed: however, they would not be required to make any CSR
contributions. A transitional provision has been introduced so
that companies which have been issued with a Freeport certificate
before 14 June 2018 will continue to be exempt from income
tax up to 30 June 2021. A number of other measures have been
introduced to modernise the Freeport sector.
In view of the reduced tax rate of 3% for companies engaged in
global trading activities, it would be useful to understand whether
a Freeport activity would be considered as a global trading
activity.

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Budget 2018/2019 Our technical analysis and synopsis 15 June 2018 - EY
4. Tax administration

Authorisation to conduct prosecution for offences
Further to the increasing number of cases, the Director General of the MRA will have the
power to include any competent officer of his office to conduct any prosecution for offences
under the Revenue laws before any court, except the Supreme Court.
It will be useful to understand the reasons for the increase in the number of cases. The
success of a measure of this nature depends on its practical applications.

5% Payment on objection
In case a person has any objection with a tax assessment made by the MRA, a 10%
payment of the tax assessed is payable. The law will be amended so that an additional 5%
tax will have to be paid where written representation is made to the Assessment Review
Committee.

Return of information
Casinos, gaming houses and bookmakers will now have the obligation to submit return for
withheld taxes.
The success of this measure depends on a number of important factors including the
basis of the assessment. Cases on point of law should be excluded from the purview of
this measure.

Recovery of arrears of revenue
The Mauritius Revenue Act will be amended so that the recovery actions for tax arrears
under the various revenue laws are streamlined.
Whilst the objective of this measure is welcomed, the cases where tax arrears are not due
are still a cause of concern. Unless the person has all the relevant evidence, he may have
to pay a tax that has already been settled.

Allocation of payment of arrears
The MRA acts as a collecting agent for various governmental bodies, for example, collecting
National Pension Fund (‘’NPF’’), National Saving Fund (“NSF”) and Human Resource
Development (‘’HRD’’) Levy. However, the MRA will now have prescribed guidelines on
which debts to be prioritised to be cleared.
It seems that the MRA would devote its resources towards most important taxes or other
collections in terms of amount and obligations to recover a debt.

Expeditious Dispute Resolution of Tax Scheme
(‘’EDRTS’’)
The EDRTS was restricted to assessments of less than Rs 10 Million and for periods before
1 July 2015.

It will now be applied to assessments raised during the year ended 30 June 2016.
It is a fact that a number of cases have been resolved under the EDRTS. To that extent,
the proposed measure is welcomed. It is, however, felt that the measure should include
assessments issued during the year ended 30 June 2017.

                                                             Budget 2018/2019 | June 2018      9
5. Value Added Tax                                                     Supply of manual labour in the
                                                                       agricultural or construction sector
                                                                       An individual operating in the agricultural or construction sector,
                                                                       such as a sirdar or a labour contractor, supplying manual labour to
Special levy under the Value Added Tax                                 a VAT-registered person will be exempt from VAT.

Act                                                                    This measure is designed to promoting a more labour intensive
                                                                       workforce as the individual supplying manual labour would benefit
The bank levy will be dealt with in the Value Added Tax Act instead    from an exemption for VAT purposes. However, the individual
of the Income Tax Act as from 1 July 2019: the levy will be            would not be able to claim any input tax. The effective date of this
computed on the net operating income of the domestic operations        measure has not been announced.
of commercial banks.
We are surprised to note that although special levy would
continue to be computed on the net operating income of the bank,       Public buses
it would be administered under the VAT Act. The levy is not of         The Minister announced that VAT exemption on semi low-floor bus
the same nature as VAT and to the extent that it is based on the       bodies built on chassis would be extended to all buses meant for
net operating income, the current legislative framework appears        public transport.
justified. The timing of the payment and the return should be
clarified. The rate applicable for the computation of the special      This measure is welcomed as it would help in the development and
levy has not been specified. The book profit appears to be no          promotion of local artists. The effective date for this measure has
longer relevant with this measure.                                     not been announced.

                                                                       VAT for Micro, Small and Medium Sized
VAT refund scheme                                                      Enterprises (MSMEs)
The Value Added Tax (“VAT”) refund scheme introduced by the
                                                                       A VAT-registered person will henceforth not be required to pay VAT
Finance (Miscellaneous Provisions) Act 2011 would be widened to
                                                                       on import of machinery and equipment, if the amount payable is Rs
include the following goods and services:
                                                                       150,000 or more.
(a) Planter
                                                                       This measure would benefit bus owners engaged in the provision
•    Branch chopper                                                    of transport for the general public.
•    Earth auger
                                                                       Fees on the examination of vehicles
•    Fogging machine
                                                                       The zero-rated VAT status of fees payable for the examination of
•    Handy blower                                                      vehicles (fitness) will be extended by another two years up to 30th
•    Irrigation hose                                                   June 2020.

•    Mini tiller, including blade                                      The extension of the zero-rated status of fees is welcomed as
                                                                       the car users would not pay VAT and the service provider would
•    Land preparation works; and                                       generally be able to claim its input tax.
•    Rental of land leased for agricultural purposes.
                                                                       Photovoltaic system
(b) Purchase of musical instruments including guitar, drum set,
                                                                       All components, in addition to photovoltaic panels, generators,
dhol, flute and violin, by local artists.
                                                                       batteries and inverters, forming an integral part of a photovoltaic
This measure is welcomed as it would help in the development and       system would henceforth not be subject to VAT.
promotion of local artists. The effective date for this measure has
not been announced.                                                    Clarity should be brought on whether these components would
                                                                       be classified as exempt or zero-rated supplies for VAT purposes.
VAT for Micro, Small and Medium Sized                                  A zero-rated status would ensure that there would be no VAT
                                                                       burden. Currently photovoltaic generators, panels, batteries and
Enterprises (MSMEs)                                                    inverters are zero rated.
A VAT-registered person will henceforth not be required to pay VAT
on import of machinery and equipment, if the amount payable is Rs
150,000 or more.
This measure aims at promoting local entrepreneurship as it is
expected to ease the cash flow of businesses. We believe that any
installation cost, together with the related service should be taken
into consideration to determine the threshold of Rs 150,000 if the
installation cost is incidental to the machinery and equipment so
that it forms part of the same commercial and legal arrangement
with the foreign party.

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Recovery of VAT in hospitality sector                                    7. Background
 VAT paid by VAT-registered persons, whose main activity is the
 supply of accommodation, catering, entertainment or rental/lease
 of motor vehicles will be available as credit for input tax.
 This is a welcomed clarification in view of the number of litigations    •   Uncertainty and adversity at the global level
 on the input tax deductibility of such expenses. Cases where such        •   Impact
                                                                              ►      of external pressures cannot be underestimated
 activities are not recurrent should be clarified: otherwise the
 principle of neutrality would be breached.                               •   Ambition
                                                                              ►        is to have a stronger economic performance
                                                                          •   Recognition
                                                                              ►           of the fundamental values in a new landscape

 VAT to be clawed back on capital goods                                   •   The
                                                                              ►   Budget is built on seven major strategies

 The MRA will be empowered to claim the VAT refunded on capital           •   Annex
                                                                              ►      to the Budget Speech is an integral part of the proposed
 goods exceeding Rs 100,000 if an operator registers voluntarily                measures:
 for VAT purposes solely for benefitting from VAT refund on capital
                                                                              •    Part
                                                                                   ►    A-taxation and public finance
 goods and is subsequently deregistered for VAT purposes.
                                                                              •    Part
                                                                                   ►      B-other budget measures, like the set up of a Single
 This measure reinforces the power of the MRA for abusive cases
                                                                                     Licensing Agency and the processing of work permit
 on VAT refund relating to capital goods.
                                                                                     applications
                                                                              •    Part
                                                                                   ►      C-other legislations, including the Companies
 6. Budget outturn and estimates                                                     Act, the Employment Rights Act and the Non-Citizens
                                                                                     (Employment Restriction) Act

 Budget outturn
 •     Budget deficit for 2017-2018 is expected to be 3.2% of GDP:
       with a total revenue of Rs106.8 billion and total expenditure of
       Rs 122.3 billion
 •     P
       ► ublic sector debt is expected to decline from 64.8% of GDP at
        end of 30 June 2017 to 63.4% by the end of June 2018

 Budget estimates for 2018-2019
 •     Total expenditure: Rs 133.8 billion
       •    Recurrent
            ►         spending: Rs 115.9 billion
       •    Capital
            ►       expenditure: Rs 17.9 billion
 •     T
       ► otal revenue: Rs 117.4 billion
       •    Tax
            ►   receipts: Rs 99.7 billion
       •    Non
            ►   tax receipts: Rs 8.8 billion
       •    Grants:
            ►       Rs 8.9 billion
 •     O
       ► verall budget deficit: Rs 16.3 billion-3.2% of GDP
11   Budget 2018/2019 | June 2018
8. The seven broad strategies                                           •   Support
                                                                            ►         to University of Mauritius so that it can double its intake
                                                                              of students in Computer Science and Software Engineering
                                                                        •   Provision
                                                                            ►         to train students in primary and secondary schools in
                                                                              coding
                                                                        •   Set up of a National Regulatory Sandbox licencing for Fintech
Strategy one: Our youth our future                                          activities
Our young people need the opportunity and the means to access           •   New
                                                                            ►   licensing activities to be created by the FSC
the labour market...
                                                                            •    Custodian
                                                                                 ►         of Digital Assets and Digital Market Marketplace
Our Youth Our Future
                                                                                 •    Objective
                                                                                      ►           is to provide a safeguard of digital assets by
•   Target 14,000 unemployed though a number of measures,                               investors and enable digital assets exchange
    including the following:
                                                                                 •    FSC
                                                                                      ►     will also issue guidelines on investment in crypto
     •   3,000
         ►       youths will join the National Skills Development                       currency as a digital asset
           Programme
                                                                            •    Thus,
                                                                                 ►      applicants for Fintech activities will have appropriate
     •   Youth
         ►        Service Programme will be a new component                        cyber-security and cyber-resilience policies and capacities
           aimed at developing soft skills like work ethics and
           discipline                                                   •   Harmonization
                                                                            ►                 of laws against money-laundering, terrorist
                                                                              financing for banking and non-banking financial services so that
•   Another
    ►         3,000 unemployed will be enrolled in the National               they are consistent with the development in Fintech
      Apprenticeship Programme
                                                                        •   Reform in the financial services sector:
•   Introduction
    ►               of SME Employment Scheme: each graduate
      will receive a monthly stipend of Rs 14,000 over two years of         •    New
                                                                                 ►      harmonized regime for Global Business companies and
      employment                                                                   a separate fiscal regime for banks
•   Youth
    ►       Employment Programme will focus on job placements               •    As
                                                                                 ► from January 2019, the FSC will not issue Category 2
      for HSC holders                                                             Global Business Licence: a grandfathering provision would
                                                                                  apply for existing companies
•   Promoting Work@Home Scheme
                                                                            •    Global
                                                                                 ►      Business companies will be required to comply with
     •   Double
         ►       deduction for wage and salary costs for first two                 enhanced substance requirements
           years
                                                                            •    New
                                                                                 ►    framework to govern and improve the oversight of
     •   Annual
         ►        tax credit of 5% for investment made in the                      Management Companies
           relevant IT system for three years
                                                                            •    FSC
                                                                                 ►     will work with other countries so that the
•   Investment
    ►              of some Rs 160million in the construction of the                competitiveness of Mauritius is enhanced as a financial
      Civil Service College at Reduit                                              centre
                                                                            •    FSC,
                                                                                 ►     in collaboration with the OECD, will host a Regional
Strategy two: New opportunities for                                                Centre for capacity building and combat against financial
                                                                                   malpractices
private investment
... aim to foster the development of a new growth pole revolving
around Artificial Intelligence, blockchain technologies and Fintech.    Strategy three: new wave for import
New opportunities for private investment                                substitution and revive export led
•   Set up of Mauritius Artificial Intelligence Council with members    activities
    of the public and private sectors as well as international
                                                                        ….to boost private investment and generate jobs but also to reduce
    experts to drive Artificial Intelligence activities and advise
                                                                        our trade and current account deficits.
    Government on the appropriate course of action
                                                                        Import substitution
•   Set
    ►     up of a steering committee under the Prime Minister’s
      Office to ensure consistency between Ministries and ensure        •   Focus on production of food crops: idea is to set up 100 farms
      timely implementation of the digitization project                     over the next two years under a Sheltered Farming Feature that
                                                                            will have the following features:
•   CEB
    ►     will offer a special rate of electricity to accredited data
      center operators having at least a Tier 3 infrastructure              •    Farms
                                                                                 ►     will be made available on a Ready-To-Operate basis;
•   New
    ►      scholarship scheme for students wishing to specialize in         •    Provision
                                                                                 ►         of facilities like security and marketing by the
      digital technology: 50 students per year will benefit from this              Economic Development Board
      measure on an annual basis
                                                                            •    Technical
                                                                                 ►          assistance provided by the Food and Agricultural
                                                                                   Research and Extension Institute
                                                                            •    Access
                                                                                 ►       to finance from Development Bank of Mauritius and
                                                                                   Mauback at a reduced rate of 3%
                                                                            •    Income
                                                                                 ►          from the projects would be exempt from tax for the
                                                                                   first 8 years;
                                                                                                               Budget 2018/2019 | June 2018      12
•    Government
      ►             will ensure that the sheltered farms will be               •    The
                                                                                    ►     enhanced bilateral cooperation with Saudi Arabia and
        equipped with rain harvesting systems and photovoltaic                        Middle East Countries
        technology
                                                                               •    Renewed
                                                                                    ►       partnership with member states of the
 •    Funds
      ►        provided for the training of households in aquaponics                  Commonwealth Group; and
        for the production of water adaptive vegetables in freshwater
                                                                               •    Framework
                                                                                    ►           agreement for the continental framework
        ponds and basins
                                                                                      agreement for the continental FTA in Africa
 •    Measures to boost food security programme:
                                                                           •   Introduction
                                                                               	           of a 5-year tax holiday for Mauritian companies
       •   Contribution
           ►             of Rs 30million by Government to a new                collaborating with the Mauritius Africa Fund for the
             Crop Insurance Scheme                                             development of infrastructure in the Special Economic Zones:
                                                                               the tax holiday will apply to investment in SEZ infrastructure
       •   Subsidy
           ►         on production of onion and potato seeds will be           development and will benefit project developers and project
             increased                                                         financing institutions
       •   Set
           ►     up of a National Animal Identification System to          •   Government
                                                                               	             is working with EU to set up a loan guarantee
             electronically identify each animal with a unique number          facility to assist cross border investment within the Africa
       •   Mauritius
           ►           Meat Authority will set up a new system for the         Strategy
             collection, slaughter and sale of pigs                        •   Encourage
                                                                               	        community-based and inclusive tourism
       •   Write
           ►      off of all outstanding loans contracted under the Pig        •    Pilot
                                                                                    	    project: harness the potential of Mahebourg as a
             Breeders Relaunching Scheme                                            “Village Touristique”
 •    Ministerial Committee has been set up to assess the situation                 •    Build
                                                                                         	    on historical and green assets; like the Blue Bay
      in the cane industry to address the various challenges                             marine Park and the Naval Musuem
 •    Measures in connection with the Ocean economy:                           •    Project
                                                                                    	      will be implemented through a public-private
       •   Creation
           ►         of an Ocean Economic Unit to prepare a National                partnership endeavor
             Ocean Policy Paper                                            •   New
                                                                               ►      Grant Schemes will be set up under the National Arts Fund
       •   Merger
           ►         of the Mauritius Oceanography Institute and the             for:
             Albion Fisheries Research Centre                                  •    Encouraging
                                                                                    ►           emerging talents
       •   Development
           ►              of an Ocean Observatory e-platform to                •    Production
                                                                                    ►          of art work
             support the Marine Spatial Planning Initiative of Mauritius
                                                                               •    Stimulating
                                                                                    ►           research in various fields of arts and culture
       •   Conduct
           ►         of geotechnical study in the continental shelf
             management area of the Mascarene region to explore any        •   Economic
                                                                               ►            Development Board will manage two schemes to
             opportunities                                                       attract High Net Worth individuals. The criteria will be defined
                                                                                 in advance and a due diligence exercise will be performed
       •   Introduction
           ►               of a Group Life Insurance Scheme for
             registered fisherman to cover accidents and losses at sea         •    Citizenship
                                                                                    ►           for foreign nationals
       •   Allow
           ►       foreign industrial fishing companies to fish in the              •    A
                                                                                         ► non-refundable contribution of US1million is
             shallow water banks provided that they sell all their fish                   required to be made to a Mauritius Sovereign Fund
             on the Mauritian market
                                                                                    •    Additional
                                                                                         ►          contribution of US$ 100,000 per
       •   Introduction
           ►              of a grant of 60% on the cost of outboard                        member of family is required for the spouse and his
             engines and fishing nets by fishermen cooperatives: this                      dependents
             is capped at Rs 60,000
                                                                               •    Mauritian
                                                                                    ►         passport
 •    Measures
      ►        in connection with the manufacturing sector:
                                                                                    •    A
                                                                                         ► contribution of US$ 500,000 is required to the
       •   New
           ►      business parks will be set up in Cote D’Or; Riche                       Mauritius Sovereign Fund: additional contribution of
             Terre and Rose Belle                                                         US$ 50,000 is required for each dependent
       •   Strengthen
           ►          trade policy an use all economic diplomacy           •   Economic
                                                                               ►         Development Board will also operate a Foreign
             mechanisms to address the issue of dumping                          Manpower Scheme to attract foreign talents:
       •   Higher
           ►       standards of quality and safety required for                •    An
                                                                                    ► application for an occupation permit will be processed
             imported products                                                       within 5 days; and
       •   Procedures
           ►            on recruitment of foreign nationals will be            •    Employer
                                                                                    ►          will have to contribute the equivalent of one
             streamlined as a result of the lack of appropriate skills                month salary per foreign worker recruited
 •    Measures
      ►           to boost demand for Mauritian products: focus            •   New
                                                                               ►       package of fiscal and non-fiscal facilities to attract foreign
        on economic diplomacy. Government is completing its                      retirees: they will be exempt from customs duties on the
        negotiations in the context of the following:                            import of personal effects up to the value of Rs 2million.
       •   The
           ►     Comprehensive Economic Cooperation Partnership            •   DBM
                                                                               ►     will earmark Rs 1billion to support the Micro, Small and
             Agreement with India                                                Medium Sized Enterprises through a number of schemes
       •   The
           ►   Free Trade Agreement with China

13   Budget 2018/2019 | June 2018
Strategy four: building the strategic and
 modern infrastructure
 Our aim is to create the physical infrastructure that measures up
 to our vision of the future-a future of modernity, high income and
 smart living
 Building the infrastructure
 •    Rs 37 billion will be invested in transport infrastructure over
      the next three years
 •    R
      ► s 12 billion has been earmarked for the construction and
       upgrading of roads
 •    I► nvestment will be made in three major projects to expand the
        port facilities and improve its productivity
 •    T
      ► he Airport of Mauritius Limited will start procedures to extend
       the new passenger terminal: objective is to increase passenger
       handling capacity to 8 million annually
 •    I► ntroduction of a National Regeneration Scheme under the
        Smart City Regulations
 •    S
      ► ome Rs 5.6 billion has been earmarked for NDU projects for
       the construction and upgrading of drains, secondary roads and
       small sports facilities across the island

 Strategy five: Securing a sustainable
 development in our environment
 ... a country with a sustainable environment that enables a healthy,
 productive and meaningful life
 Secure and protect our environment
 •    An amount of Rs 2 billion will be transferred to the National
      Environment Fund: the Fund will be revamped so that it can
      have the financial assistance from international sources like
      the Green Climate Fund and the Global Environment Facility. Rs
      450 million has already been received from the King Salman
      Humanitarian Aid and Relief Centre and the Adaptation Fund
      Board of the United Nation
 •    T
      ► he National Environment Fund will assist on a number
       of projects: examples are the construction of drains, the
       rehabilitation, protection and management of the beaches,
       lagoons and coral reefs
 •    I► nvestment in a rainwater harvesting system will qualify for a
        deduction against the taxable income of an individual
 •    V
      ► arious measures to maintain a sustainable environment: for
       example Government will commission a maximum of 6 solar
       farms and a waste-to-energy project will be implemented

14   Budget 2018/2019 | June 2018
Strategy six: Lifting the quality of life
... a decent dwelling for all families and safety for everybody
Lifting the quality of life
•    Health
     •    C
          ► onstruction of a new teaching hospital in Flacq
     •    D
          ► evelopment of a medical hub at Cote d’Or City
     •    S
          ► et up of a new cancer centre
     •    P
          ► rovision for the acquisition of a mobile caravan to
           promote early detection of breast and cervical cancer
     •    P
          ► rovision of Rs 100 million for e-Health
•    Sports and leisure
     •    Publication of a National Sports and Physical Activity
          Policy in July 2018: investment of Rs 38million to provide
          sports and physical activity programmes
     •    R
          ► s 75million is being provided to support the JIOI 2019:
           in respect of the organisation of the game Rs 195 million
           is being earmarked
     •    U
          ► pgrade of 17 sporting facilities for a total amount of Rs
           375 million
•    Education
     •    Construction of 2 pre-primary units at Grand Baie and
          Montagne Ory
     •    Construction of a gymnasium in six State Secondary
          Schools
     •    Set up of specialist rooms for Food and Textile Studies and
          Design and Technology
     •    Increase in additional deduction for deduction for
          dependent child pursuing tertiary education
•    Decent dwelling
     •    Fixed penalty will apply to additional 63 offences
     •    ► Fine for speeding of more than 25 km per hour increased
           from Rs 2,500 to Rs 10,000
     •    ► Fine for disqualification will be increased from Rs 10,000
           to Rs 100,000
     •    ► A Cumulative Road Traffic Notice will be issued to a driver
           after he has committed three cumulative road traffic
           offences under the new system
     •    ► Issue of probationary driving licence for 2 years
     •    ► Zero tolerance of alcohol will be applied to drivers
     •    ► Additional mobile speed cameras will be installed to
           perform spot checks
     •    ► The Road Development Authority will be provided with Rs
           600 million for road maintenance

                                       Budget 2018/2019 | June 2018     15
Strategy seven: Creating an inclusive and
 caring society
 Too many gender gaps have been with us for too long
 Creating an inclusive and caring society
 •    Introduction of gender considerations
       •   I► nclusion of a chapter on gender mainstreaming in 3 Year
             Rolling Strategic Plan
       •   C
           ► onduct of a study on the introduction of gender-based
            budgeting
       •   A
           ► mendment to the Employment Rights Act for mothers
            with less than 12 months service
       •   G
           ► overnment will come up with a Gender Equality Bill
       •   T
           ► raining of 250 Government officials to deal with gender
            issues
       •   A
           ► llocation of Rs 200,000 to each Ministry to promote
            awareness programme and implement activities on
            gender mainstreaming
       •   E
           ► ach Ministry will be required to have a Gender Cell that
            will encourage greater balance in the decision making
            process
       •   T
           ► ax incentives to creches
 •    Enhancing support to our elderly
       •   Construction of two elderly day centres at Bambous and
           Chemin Grenier
       •   S
           ► pecialised training for 50 carers
       •   I► ncrease in monthly grant to employees of residential care
             homes and institutions from Rs 6,071 to Rs 8,500
 •    Enhancing consumer welfare
       •   Removal of surcharge on late payments governed by the
           Hire Purchase and Credit Sales Act
       •   F
           ► inalisation of the Ombudsperson for Financial Services
            Bill to better protect consumers for all financial services
       •   B
           ► lood Glucose Strips will be subject to the maximum
            mark-up system so that its price for each pack of strips is
            expected to decrease between Rs 40 and Rs 170
       •   S
           ► tricter control on quality of consumer goods
       •   R
           ► eduction in the price of Mogas from Rs 52 to Rs 49.65
            per litre
       •   R
           ► eduction in the price of gas oil from Rs 41.90 to Rs 40
       •   R
           ► eduction in the price of LPG of 12 Kg from Rs 270 to Rs
            240

16   Budget 2018/2019 | June 2018
Contact us

For additional information regarding this Alert, please contact the
following:
Ernst & Young, Mauritius

Ryaad Owodally
+230 403 4717		              ryaad.owodally@mu.ey.com

Assad Khoosee
+230 403 4738		              assad.khoosee@mu.ey.com

Kawsar Aumeer
+230 403 4777		              kawsar.aumeer@mu.ey.com

Kooshal Mungrah
+230 403 4777		              kooshal.mungrah@mu.ey.com

Vashist Hassea
+230 403 4777		              vashist.hassea@mu.ey.com

                               Budget 2018/2019 | June 2018   17
Budget 2018/2019 | June 2018   18
The information in this pack is intended to provide only a general outline of the subject covered. It should not be
regarded as comprehensive or sufficient for making decisions, nor should it be used in place of professional advice.
•      Accordingly, Ernst & Young accepts no responsibility for loss arising from any action taken or not taken by anyone
       using this pack.
•      Further, the information in this pack will have been supplemented by matters arising from any oral presentation by
       us, and should be considered in the light of this additional information.
•      If you require any further information or explanations, or specific advice, please contact us and we will be happy to
       discuss matters further.

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