Global Tax Alert | 26 November 2013
Mauritius releases 2014 Budget
On 8 November 2013, Mauritius' Minister of Finance and Economic Development released the country's 2014 Budget. This is the third Budget of the Minister of Finance and Economic Development under the present Government. Unlike his first Budget, this Budget does not have significant fiscal reforms. The Budget is characterized by various measures that impact the various spheres of the economy. Enhancing the country's connection to the rest of the world for the movement of goods, services and people is one of the key policy measures that is required in today's global environment.
The Government will further support and empower enterprises to do business in Africa. This Budget announces the creation of the Mauritius-Africa Fund of Rs 500 million over five years to participate in the equity financing of businesses investing in viable projects in any African country. The participation will however be limited to 10% of the share capital of the enterprise. The Fund will also offer fee paying consultancy services to African Governments and Public Sector entities.
A subsidy of 25% of freight cost on containers will be provided to Mauritian enterprises seeking to expand exports into African markets, except to South Africa and Madagascar. The maximum amount is limited to US$300 per container. Additionally, a subsidy of 50% will be provided on the cost of Credit Guarantee Insurance when exporting to unfamiliar and risky markets in Africa.
It has been announced that the processing of permits and approvals relating to major big impact investment projects will be fast tracked.
The Investment Promotion Act (IPA) and the Non-Citizens (Property Restriction) Act will be amended accordingly. Consequential amendments will be brought to the Planning and Development Act, Building Act, Morcellement Act, Environment Protection Act, Local Government Act and Sugar Industry Efficiency Act.
The tourism sector has experienced growth, but still remains vulnerable. Every effort will be made to generate flights from new markets. The amount of Rs 25 million is being provided as a Special Fund to boost arrivals from regional destinations during the low season. Hoteliers and service providers will be invited to join in this promotion exercise.
Financial services sector
The financial services sector remains the most productive sector of the economy. A continued increase in commercial substance is important for the growth of this sector. This Budget talks about strengthening the regulatory framework: it has been proposed to redefine the term “financial crime” to capture an offense under the various Acts and banking laws, to amend the Bank of Mauritius Act and the Financial Services Act to strengthen their respective regulatory functions, to amend the IPA and the Investment Promotion (Real Estate Development Scheme) Regulations to allow companies holding a Category 1 Global Business License to purchase residential property in Mauritius under the IRS/RES schemes. A new Bill on captive insurance will be introduced.
It has been announced that Mauritius will adhere to the Multilateral Convention on Mutual Administrative Assistance in tax matters developed jointly by the Council of Europe and the Organisation for Economic Cooperation and Development. This convention facilitates international cooperation for better operation of national tax laws, while respecting the fundamental rights of taxpayers.
The Stock Exchange of Mauritius SEM will introduce a Sustainability Index that will showcase companies listed on the exchange that are actively promoting the sustainability cause. Additionally, the SEM will promote a new Social Impact Exchange to develop Mauritius into a regional center for investment that has a positive social or environmental impact. SICOM Ltd will be listed on the SEM, with its shares offered in priority to small private investors.
The role of agriculture remains significant in the development of Mauritius. The full VAT refund scheme for agricultural machinery, equipment and tools which was introduced in 2012 is now being made permanent.
The Government will continue to strengthen the Domestic and Export Oriented manufacturing base. An Investment Tax Credit Scheme will be introduced in order to encourage high-tech manufacturing. Work application permits will be fast tracked for Export Oriented Enterprises, which need to compete on a worldwide basis. Annual permit fees for employees after the fifth year of employment will be reduced from Rs 10,000 to Rs 6,000 for these enterprises.
Small and Medium Enterprises
In order to enhance the visibility of small businesses, the Government will provide a free basic website to all Small and Medium Enterprises. More elaborate websites costing up to Rs 6,000 will be subsidized at 50%.
The Government will introduce a new loan guarantee scheme for small enterprises with annual turnover of less than Rs 10 million. They will not be required to provide collateral and third party guarantees. The Government will instead guarantee these loans directly to commercial banks up to 70% of any amount of loss incurred.
Two SME parks under construction will provide industrial spaces to 80 more SMEs. Businesses using these units receive a 50% subsidy on rent for the first three years.
Innovation is a crucial success factor in order to create the next wave of prosperity. To enable industries to adopt the latest techniques, designs and practices, 25% annual allowance will be granted for the purchase of patents.
The Government is removing the exemption from payment of levy, National Pensions Fund and National Savings Fund applicable to foreign workers in their first two years of employment, except for those working in Export Oriented Enterprises.
All the income tax thresholds are being increased by Rs 5,000.
The scope of tax deductions at source will be extended to cover certain consultancy and management services and interest payments made by financial institutions and other companies to an individual, where such interest is taxable.
The rate of special levy applicable on Segment A operations of banks is being increased as from 1 January 2014. The method of calculation is also being reviewed. The special levy will be calculated in 2014 and 2015 as 10% of chargeable income instead of 3.4% of book profit and 1% of operating income.
Shipping income derived by the owner of a foreign vessel from its operation is exempt from income tax. It has been clarified that this statutory exemption includes income obtained from the charter of such ships.
Corporate Social Responsibility will apply to resident sociétés on their net profit adjusted for income tax purposes, excluding exempt income.
Land transfer tax will be set at a single rate of 5%. The rate of registration duty is also being aligned at 5%. The change is effective as from 1 January 2014. The registration duty payable on transfer of RES residence is being changed from US$25,000 to the higher of 5% of the value or US$25,000.
This Budget proposes to extend the excise duty on energy inefficient products to cover air conditioners, tumble dryers and electric lamps, , to remove VAT on medical, surgical, laboratory sterilizers, x-ray film and photographic plates for medical purposes and bio-pesticides. Registration duty will be increased by 30% as from 9 November 2013 on motor vehicles, except motorcycles of cylinder capacity of less than 250 cc.
The Budget also recognizes various limitations in the regulatory framework in a number of instances and it is encouraging to note that the proposals made by the Minister are actually enacted. However, it must be stressed that the enactment of the budget proposals are not enough on their own: it is their successful implementation and enforcement that count at the end of the day. In that respect it is important that all the stakeholders provide their comments on the amending laws as well as the practical aspect of any change: otherwise the raison d'etre of the whole exercise should be questioned.
In summary, this is a Budget that builds on the policies and measures announced previously, with continuing emphasis on the widening circle of opportunities and recognizing that investment into people is the key to the objective to make Mauritius globally competitive. The changes aimed at facilitating business are also welcomed.
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Mauritius), Ebene, Mauritius
- • Assad Khoosee
+230 403 4738
- • Ryaad Owodally
+230 403 4717
Ernst & Young (China) Advisory Services Limited, Pan African Tax Desk, Beijing
- • Rendani Neluvhalani
+86 10 5815 2831
Ernst & Young LLP, Pan African Tax Desk, New York
- • Dele Olaogun
+1 212 773 2546
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
- • Leon Steenkamp
+44 20 7951 1976
EYG no. CM3990