Our technical analysis - Budget Speech 2015-2016 23 March 2015
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Our technical analysis Budget Speech 2015-2016 23 March 2015
Table of contents
Page
number
1.1 Personal tax 1
1.2 Corporate tax 4
1.3 Small enterprises 6
1.4 Miscellaneous tax measures: Income tax 7
1.5 Miscellaneous tax measures: Value Added Tax 8
1.6 Advertising structure fee 9
1.7 Tax administration: General 9
1.8 Tax administration: Income tax 11
1.9 Tax administration: Value Added Tax 11
1.10 Tax administration: Excise duty 12
1.11 Tax administration: Customs 12
1.12 Tax administration: Registrar-General’s Department 12
1.1 Personal income tax
1.1.1 Submission of personal income tax returns
The tax year will be changed from 31 December to 30 June to align with the financial year of the Government.
This implies that individuals will be required to file a tax return for the six months ending 30 June 2015.
Exceptionally, 2 tax returns will be filed during the year 2015.
Implications
The Finance and Audit Act was amended with effect from 1 January 2015 so that the fiscal year is based on a
30 June year end instead of the calendar year end. The consequential amendments in the Finance and Audit
Act did not deal with the Income Tax Act 1995 (‘’ITA 1995’’).
It is also not clear if the new tax year would imply that resident partnerships should mandatorily be required to
change their year-end to 30 June. Such a course of action would depend on the rules used to determine the
appropriate basis period. Under the current rules, section 118A of the ITA 1995 does not apply to resident
partnerships as they are all required to have a 31 December year end for tax purposes. This should be clarified
upfront to ensure that resident partnerships do not have any last minute compliance burden. Care is required
where the partnership has individuals as partners.
The Finance (Miscellaneous Provisions) Act 2015 (“FMPA 2015”’) should also specify the time bar period for
the open tax years further to the change in the fiscal year. Currently the Mauritius Revenue Authority (‘’MRA’’)
can issue an assessment up to 31 December. We believe that the basis period should be changed in view of the
change in the tax year for individuals.
For instance, the MRA has up to 31 December 2017 to issue an assessment for the year ended 31 December
2012. The amending law should clarify as to whether the examination window would be extended till 30 June
2018 in view of the change in the fiscal year end.
1.1.2 Income Exemption Threshold and other reliefs
The Income Exemption Threshold (‘’IET”) will be increased by Rs 10,000 for all the following categories as from
the year ending 30 June 2016: the percentage increase is provided below:
Percentage
Current Proposed increase
Category of taxpayer Rs %
Category A 275,000 285,000 3.6
Category B 385,000 395,000 2.6
Category C 445,000 455,000 2.2
Category D 485,000 495,000 2.1
Category E 325,000 335,000 3.1
Category F 435,000 445,000 2.3
1In connection with the six months ending 30 June 2015 (the “transitional period”), the IET will be halved; this
implies that adjustments will have to be made to the current Pay As You Earn (‘’PAYE”) calculations to reflect
the changes above. This will also apply the following:
- Interest on secured housing loan;
- Medical or health insurance premium; and
- Additional exemption in respect of dependent child pursuing undergraduate courses.
Practical issues
We presume that the rules on the tax residency would be amended in the same manner as was the case when
the year end was changed from 30 June to 31 December for individuals where the domicile rule is not applied.
On that basis, the threshold of 183 and 270 days would be replaced by 90 and 225 days respectively. Since
the 270 days rule operates on a three year basis, the change in the year end would also impacts on the
residence of the individual for the year ending 30 June 2016 and 30 June 2017.
1.1.3 Extension of deduction in connection with dependent child pursuing tertiary
studies
The deduction in respect of dependent child pursuing tertiary studies overseas is increased by Rs 10,000; an
increase of Rs 55,000 has been proposed for domestic tertiary studies.
In addition, the deduction is now available over 6 consecutive years rather than 3 years for undergraduate
studies.
Implications
This is a measure that will be welcomed by resident individuals who should see an increase in their disposable
income. It is believed that the exemption should also apply to other professional qualifications and other post
graduate courses.
1.1.4 Interest relief
Individuals are currently able to claim interest paid on qualifying loans secured by mortgage or fixed charge on
immovable property up to an amount of Rs 120,000 annually for 5 consecutive years.
As from the income year commencing on 1 July 2015, the ceiling of Rs 120,000 together with the time limit of
5 years is being abolished.
Implications
The relief applies where the income of a person and his/her spouse does not exceed Rs 2million in an income
year. For this purpose, income includes exempt income as well and the relief does not apply if at the time the
loan is raised, the individual is the owner of a residential building.
21.1.5 Lump sum income
The first Rs 2million received as the aggregate of commutation of pension, retiring allowance or severance
allowance will be exempt from income tax with effect from 1 July 2015.
Implications
Currently, lump sum payments under the National Savings Funds Act and compensation paid under the
Employment Rights Act are exempt to the tune of Rs 1.5 million. We presume that the increased exemption
would apply for such termination payments as well.
1.1.6 Donation of Basic Retirement Pension
Any person electing to donate his Basic Retirement Pension (“BRP”) in full to an approved charitable institution
or an approved Foundation will be exempt from income tax thereon.
Implications
The exemption only applies if the BRP is donated in full.
1.1.7 Diaspora: measures to attract foreign based professionals
A bold package of incentive would be implemented to encourage the Mauritian diaspora to return to Mauritius.
Such incentives include full exemption from income tax for 10 years on all income (including worldwide
income). In addition, they will be exempted from the payment of custom duties of up to Rs 2 million on the
purchase of car as well as on the relocation of other personal assets.
This is applicable to professionals who have worked a minimum of 10 years abroad.
Implications
This measure is welcomed as a means to manage human capital moving away from the island. However,
safeguards should be introduced to prevent abusive use of such incentives.
The Speech does not indicate the type of professionals targeted by this measure.
1.1.8 Solar energy investment allowance
Households investing in their own solar energy unit will be allowed to deduct the total amount invested from
their taxable income.
3Implications
It is unclear whether the deduction would be in the form of annual allowances over several years or as full
deduction in the year of acquisition by way of a special relief. It should be clarified that if the amount invested
can be utilised against employment income.
1.2 Corporate tax
1.2.1 Corporate tax returns
Companies with accounting year end of 30 June would be granted additional time to pay their tax liabilities.
Such companies will be allowed to pay the tax due for the quarter 30 June by submitting an additional return
under the Advance Payment System for this particular quarter. Any adjustment based on audited financial
statements will need to be effected before 31 January.
Implications
This measure is welcomed in view of the end of year festivals and it also eases the cash flow positions of
companies having significant tax charge in their final quarter. However, this does not create a level playing field
for companies having a year-end other than 30 June.
Where the tax liability of a company is revised downwards following adjustments made in the accounts further
to the completion of statutory audit, any excess tax should be refunded within a minimum delay.
It is not clear from the speech whether the change in the fiscal year would also imply that the rules on the
determination of the income year would also change where the financial year-end is not coterminous with the
fiscal year.
We believe that the current section 118A of the ITA 1995 should be clarified in view of the approved return
dates for individuals, partnership and corporate bodies.
1.2.2 Alternative Minimum Tax
Alternative Minimum Tax (‘’AMT’’) is applicable where a company distributes dividend and its normal tax payable
is lower than 7.5% of its adjusted book profit. AMT was suspended for manufacturing companies and hotels
(‘’specified companies’’) for the years 2013 and 2014.
It has been proposed that AMT will be removed for all sectors.
Implications
Companies will be able to distribute dividends out of their retained earnings without incurring any additional tax
charge. This measure should be welcomed for a number of reasons. For example, losses are subject to a five
years time limit and AMT is an additional cost to the company.
4The suspension of AMT for specified companies was for the years 2013 and 2014. It is unclear whether this
measure would affect the other sectors for the years 2013 and 2014.
The effective date of this measure has not been communicated.
1.2.3 Corporate Social Responsibility
The concept of ‘’parrainage’’ will be introduced such that companies will be able to take under their wings
unsustainable pockets of poverty of Mauritius.
The structure of the CSR system will be completely revised. Companies will be able to decide on how to best
fulfil their social responsibility and obligation in the most effective manner. They will be free to allocate 2% of
their taxable profits according to their own set of priorities.
All the existing CSR guidelines will be obliterated.
Implications
Funding will be much more accessible to NGO, provided that they convince the companies of their programmes.
However, this system might involve a lot of abuse of the part of the companies as they will be free to decide on
their own set of priorities.
1.2.4 Special levy on banks
The rates of special levy on banks will remain unchanged up to 30 June 2018 as follows:
Segment A 10% of chargeable income
Segment B 3.4% on book profit and 1% of operating income
Implications
The amending laws should clarify on the applicable rates and basis of calculation for years subsequent to 30
June 2018.
1.2.5 Solidarity levy on Telephony Service Providers
The solidarity levy on telephony service providers which was applicable up to 31 December 2014 will be
extended up to 30 June 2018.
51.2.6 Production of Bio Food
A new scheme is being introduced to encourage the production of bio food. Taxpayers will be issued with a Bio
Farming Development Certificate and will benefit from an 8 year tax holiday as well as exemption from various
taxes and duties of bio food inputs.
Implications
The FMPA 2015 should specify whether any losses incurred during the exemption period would be available for
use after the exemption period.
1.3 Small Enterprises
1.3.1 Exemptions for small enterprises
Small companies registered with the new Small and Medium Enterprises Development Act after 1 June 2015
will benefit from the following exemptions for the first 8 years:
- Payment of corporate tax;
- No requirement to deduct tax at source on certain payments; and
- No submission of financial statements and annual returns to the Registrar of Companies.
The above exemptions apply only to small companies.
Implications
It is not clear if the company would also be exempt from CSR: the tax treatment of losses during the exemption
period should also be clarified and a definition on the qualifying entity is required. It is believed that the
company would still be required to submit annual corporate tax returns to the MRA during the exemption
period.
1.3.2 Administrative burden for Small Enterprises
The threshold for compulsory VAT registration will be increased from Rs 4million to Rs 6million.
Similarly, the threshold for submission of APS returns for small enterprises will be increased from Rs 4million to
Rs 10million.
Implications
This measure appears to apply only for small enterprise: this will allow them to operate at competitive rates on
the market. The administrative and compliance burden and cost will also be reduced significantly.
Other companies would still be subject to file APS returns where the income exceeds Rs 4million and they have
a chargeable income in the preceding year.
6The status of existing registered persons with a yearly turnover of less than Rs 6million should be clarified:
their deregistration may be hampered as a result of the output tax they have to account on their non current
assets and trading stock.
1.3.3 Simplified tax system
Small enterprises would be granted certain facilities to comply with their legal requirements regarding keeping
of records and filing of tax returns and VAT returns. The simplified system is on a cash basis with less complex
rules for computing CSR and annual allowances.
Such facilities would be at the option of small enterprises.
It is unclear as to whether the option to join the simplified system would be irrevocable.
1.4 Miscellaneous tax measures: Income tax
1.4.1 Interest income
Interest received by a non-resident company from debentures quoted on the stock exchange will be exempted
from income tax.
Implications
This measure is likely to attract foreign companies to invest in quoted debentures on the Stock Exchange of
Mauritius and is line with the Government’s objective to boost investment. This exemption is already applicable
on interest derived on quoted debentures held by an individual, a société or a succession. We do not believe
that the exempt status of such interest would imply that it would no longer be deductible in the computation of
the allowable loss or taxable profit, as the case may be, of the Mauritian borrower.
1.4.2 Accelerated annual allowances
The following existing provisions in connection with accelerated allowances on certain categories of non-current
assets will be extended for 3 years up to 30 June 2018.
%
Annual allowances computed on a straight line basis
Equipment costing Rs 50,000 or less 100
Electronic and high-precision machinery 50
Plant and machinery by a manufacturing company 50
Scientific research 50
Annual allowances computed on a reducing balance basis
Industrial premises dedicated to manufacturing 30
7Annual allowances on the following assets are available permanently on a straight line basis:
- Landscaping and other earth works for embellishment purposes
- Green technology equipment
Implications
Accelerated annual allowances were introduced into the ITA 1995 through the Finance (Miscellaneous
Provisions) Act 2012 in relation to assets acquired in the income years 2013 and 2014. It is understood that
the assets acquired within this time limit are entitled to the accelerated rates until they are wholly amortised.
The extension of the rates on the above listed categories is likely to encourage business owners to invest in non-
current assets allowing them to improve and expand their activities. Again, this fiscal measure is in line with the
Government policy to encourage investment and also help to alleviate unemployment.
1.5 Miscellaneous tax measures: Value Added Tax
1.5.1 VAT on health services
The Ninth Schedule to the Value Added Tax Act 1998 (‘’VATA 1998’’) will be amended to clarify that the
construction of nursing homes and residential care homes are also exempt from VAT.
Implications
This amendment is welcomed as it provides more certainty on the VAT treatment of purpose-built building for
nursing homes and residential care homes. The transaction would still be regarded as taxable for the builder so
that its input tax would be generally recoverable.
1.5.2 Prices inclusive of VAT
It has been proposed that the full price to be charged to consumers should be displayed or advertised on a VAT
inclusive basis.
Implications
This is a commendable measure as it would help reduce ambiguities for consumers. However, care should be
taken when goods and services are supplied to non-resident persons as such supplies qualify as zero-rated
supplies.
Also, businesses should be allowed ample time so that necessary amendments could be made to their existing
systems.
1.5.3 Petroleum exploration and deep water ocean applications
Machinery and equipment used in the exploration and production of petroleum products will be exempted from
VAT.
Chilled deep sea water to be used for the provision of air conditioning services will be zero-rated.
8Implications
The operational cost of such projects is expected to be reduced by such measures.
1.6 Advertising structure fee
A penalty equivalent to 50% of the advertising fee payable will be applicable on advertising fee structures which
have not been registered with the MRA. This has been introduced with the view to increase compliance.
1.7 Tax administration: General
1.7.1 Payment on objection
The amount payable at objection has been reduced from 30% to 10% as announced in the Government
Programme.
Implications
We must emphasise that the introduction of the 30% down payment by the Finance Act 2002 was to discourage
frivolous assessments. Unfortunately, the objective of the policy decision does not appear to have been
adhered to in practice.
A key area of focus concerns the resolution of the significant number of assessments at the level of the
Objection, Appeals and Dispute Resolutions Department. Timely handling of these assessments will help to
translate the desired economic benefits of the various policy decisions implemented over a number of years.
We are also hoping that the procedure on the issue of assessments be revamped so that frivolous assessments
are not issued in the first place. Applying the above principles of tax administration ensures that we maintain
the reputation of the economy, particularly towards the international business community: timely and effective
decisions are warranted on an urgent basis.
1.7.2 Expeditious Dispute Resolution of Tax Scheme (“EDRTS”)
The EDRTS will be renewed for another year such that the MRA may consider any amount assessed for
taxpayers who could not lodge an objection due to inability to pay the 30% of tax assessed.
Implications
We assume that the scheme will be operational until 31 December 2015. Taxpayers will not be penalized due to
their inability to pay the 30% of tax assessed. If implemented correctly, this measure should help in resolving
pending cases.
1.7.3 Arrears Payment Scheme
The Arrears Payment Scheme will also be renewed for another year, allowing taxpayers who have an inscription
of privilege on their debts from the Registrar-General to settle the outstanding amounts as at the budget date,
that is 23 March 2015 free of penalty provided that payment is made on or before 31 January 2016.
9Implications
This measure will encourage taxpayers to settle any amount due within the coming 10 months free of penalties.
1.7.4 Interest rate
The interest rate applicable on late payment of taxes will be reduced from 1% per month or part of the month to
0.5%.
Implications
The 10% payment at objection level will also be reduced, further enhancing the capacity of taxpayers to file
objections in cases of disagreement with assessments raised by the MRA. The date from which the reduced
interest rate is applicable is not yet known.
1.7.5 Penalty clauses for SMEs
The maximum penalty for late submission of corporate tax returns will be reduced from Rs 20,000 to Rs 5,000.
The penalty for late payment of taxes will be reduced from 5% to 2%.
1.7.6 Notice of decisions from the Assessment Review Committee (“ARC”)
A time limit of 5 working days will be introduced for the issuance of the written notice by the MRA and
Registrar-General where an agreement or decision is reached before the ARC. The notice will include the
amount of tax or duty payable and the time limit for payment.
Implications
This measure is expected to improve the efficiency of settlement of cases at the level of the ARC and will
reduce the interests applicable.
1.7.7 Notice of inscription
The MRA and Registrar-General Department will be required to provide written notice to a debtor within 5
working days when a privilege is being inscribed on his immovable property as well as on erasure.
Implications
The efficiency of communication between the authorities and the taxpayer will be enhanced as a result of this
measure, allowing taxpayers to take the appropriate actions.
101.7.8 MRA Board
The Mauritius Revenue Authority Act will be amended to enable the MRA Board to be involved in the processes
relating to the application or execution of the revenue laws. They will not have access to the information on
individual cases. This measure has been introduced to improve the system of checks and balances on the
operation of the MRA.
Implications
We hope that this measure will help in ensuring that the basic taxing principles are being adhered to by the
MRA. Above all, the MRA should act in way that is coherent with the policy decisions so that the interest of the
economy is not tarnished, particularly in the international scene.
1.8 Tax administration: Income Tax
1.8.1 Tax Deduction at Source
Deduction of tax at source will not apply to a company whose annual turnover does not exceed Rs 6 million.
Implications
The administrative burden for such companies will be reduced. The mechanics as to how this measure will be
implemented have to be looked into.
1.8.2 Large Company Statement
All companies with an annual turnover exceeding Rs 100 million will be required to submit an annual electronic
statement to the MRA giving the details of payments made during the year in excess of Rs 100,000 for
purchase of goods and services stating the names of the recipients.
Implications
The period to be covered by the statement has not been specified. Companies having an accounting year end of
31 December may find this requirement as a burden. The MRA will also be unable to reconcile this statement to
the accounts of the company in case of any audits.
1.9 Tax administration: VAT
1.9.1 Withholding of VAT
Ministries, Government departments and authorities will be required to remit a percentage of VAT on contracts
exceeding Rs 300,000 directly to the MRA. The contractor will then be required to make the necessary
adjustments in his VAT return.
Implications
The percentage of VAT that will be withheld is not yet known: the impact from a cash flow perspective for the
contractors cannot be commented upon at this stage. This will increase VAT administration for contractors.
111.9.2 Other amendments to VAT
The VAT Act will be amended to clarify that the time limit for repayment of VAT by the MRA will begin on
submission of the relevant receipts in relation to the claim. Also, VAT recovery will be limited to unpaid VAT and
not on the whole amount of VAT payable.
Implications
This measure implies that the MRA will systematically request documentary evidence prior to repayment of any
excess VAT. The amendment to the VAT recovery rules will make the system fairer vis-à-vis taxpayers. Clarity is
required on this amendment as a repayment is possible on an accrual basis.
1.10 Tax administration: Excise duty
Excise Regulations will be amended to allow the use of residual alcohol locally as a bio-fuel and also as a
product for export.
Security by way of bank guarantee for ensuring payment of excise duty will be replaced by bond, hence aligning
this requirement to the Customs laws.
1.11 Tax administration: Customs
The following amendments to the Customs Act will be made:
- A 5% penalty on late payment of customs duty and excise duty will be introduced
- An aggrieved person who makes an objection after the prescribed time limit will have the right to
appeal to the ARC
- A de minimis clause whereby no claim for refund will be made if the amount of duty is less than Rs 250
- Abandoned goods which have not obtained a sufficient price at auction will destroyed or donated to
charitable institution or to a government agency
- The warehousing process of goods will be streamlined and automated
- A new scheme to allow deferred payment of duties and taxes at import by one month, except for June,
will be opened to SMEs registered with the SMEDA and other compliant VAT registered persons.
1.12 Tax administration: Registrar-General’s Department
The following amendments will be made:
- The Registrar-General’s Department will be amended to allow for registration, submission of documents
and payment electronically
- A time limit will be imposed for the Registrar-General to deal with objections
- Any reduction in value of an immovable property at the level of the ARC will apply to both the buyer
and the seller. Any duty or tax paid in excess will be refunded.
- Advance rulings may be requested by a notary prior to a transaction at a fee of Rs 5,000
- The Registration Duty Act will be amended to clarify that exemption is also applicable on a right of
occupation on immovable property transferred from an ascendant to his descendent
- The Registrar-General will be allowed to enforce payment of any duty or tax due by attachment
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