Sudhamo Lal: “We have information on 50,000 bank accounts held abroad”

MRA’s collection operations for 2018/2019 increased by 12.5% compared to fiscal year 2017/2018. What explains this tax buoyancy when economic growth has remained over the years around 3.5% on average?

The percentage of growth in taxes and duties in 2018/2019 is in fact 8.4%. The overall growth rate includes social contributions and other levies which are credited in Special Funds.

The higher rate of growth in tax revenue compared to economic growth, often termed as tax buoyancy, is due to several factors, mainly measures taken by the MRA to widen and deepen the tax base. The deepening of the tax base refers to actions taken to make existing taxpayers pay a fairer share of tax whilst a widening of the base is on account of actions taken to bring in new taxpayers on the register.

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What actions have been taken to deepen and widen the tax base?

When we increase the number of filers, we obtain third-party information such as data from imports, acquisition of properties, expensive vehicles, trips made abroad and dividends paid. These represent multiple forms of indicators of one’s income and assets derived or held in Mauritius. On the basis of this and filing contents, there may be indication about eligibility to some taxes not being currently declared by individuals or companies. We then issue notices to the eligible taxpayers. This is a process of widening taxpayers’ base.

Then, there are filers who are declaring their taxes, but not issuing to the MRA the correct amount. In this endeavour, we proceed with targeted fiscal investigations. For example, we go to a restaurant. We see how many tables it displayed, how many customers are dining, whether it has a cash register and the amount of sales calculated tally with the sum of taxes declared. Some restaurants declared sales on on-spot consumption, but not through takeaway formula or declared sales only made by credit cards. By matching complementary internal information collected with information filed, we are able to sum up the right tax amount to be paid.

For the fiscal year ended 30 June 2019, the process of widening the tax base has identified 3,400 new self-employed, 13,100 new salary-based, 8,000 new companies and 2,100 VAT registered individuals.

Out of the Rs 98.37 billion collected in 2018/19, VAT contributed Rs 34.91 billion. Are you satisfied with this achievement?

Indeed, VAT, which represents some 35% of our collections, has grown by 5.8% in fiscal year 2018/2019. Although this is a respectable achievement, I personally believe that there is scope to further increase VAT collections through a review of our VAT compliance monitoring strategy. We have some concerns regarding VAT compliance in the trading, hotel and restaurant and manufacturing sectors, and this is being given due consideration by the MRA.

The headline inflation dropped from 4.3% in June 2018 to 1.0% in June 2019. How did that affect your revenue collection?

It is likely that the drop in the rate of inflation has affected our collections, especially the consumption taxes, such as VAT, where the tax payable is a percentage of the price charged. But I do understand that it is important, from a national perspective and for our long-term economic growth sustainability, to keep inflation under control.

In the last Budget, fuel prices were lowered, while those of alcohol and cigarettes remained unchanged. How will the MRA compensate for the shortfall in revenue collected?

The projected collections under petroleum products for the fiscal year 2019/2020 are Rs 4.6 billion as compared to actual collections of Rs 5.7 billion in fiscal year 2018/19. The lower projections are mainly on account of the reduction in fuel prices.

Collection of excise duties is either calculated on the basis of quantity or price. So, whether the prices go up or not, it may not affect the revenues. However, when major shortfall is witnessed, we try to find some adjustments elsewhere.

Regarding alcohol and cigarettes, the excise duty on these items is mainly of a specific nature, that is, a fixed amount per litre/packet. Hence, to adjust for the time value of money, the best practice is that the rate of tax is increased at regular intervals, albeit, not necessarily every year.

Speaking of alcohol, it would seem that there is a lack of parity on the amount of tax levied on champagne (described as overtaxed) when compared to sparkling wine or a prosecco of equal range. Why is it so?

For the purposes of the customs laws, champagne and sparkling wine are treated as two different products with different HS Codes and they attract different rates of excise duties. So, the classification regarding rate of taxes to be levied on these products is international. The tax rate applied locally is the decision of the government; the MRA is only the collector.

According to your forecasts, an increase of 6.4% in revenues is expected for the fiscal year 2019/2020. What will be the key growth drivers?

I would like to stress that it is always a daunting challenge to bring in revenue growth for government in excess of nominal economic growth, year in and year out. But, at the MRA, we are committed to our mandate of generating maximum revenue for government to finance its socio-economic projects and ensure that every citizen pays his fair share of taxes.

For the financial year 2019/2020, personal income tax, value added tax and corporate income tax are anticipated to drive the rise in collections of 6.4%. For this to happen, MRA is expected to supplement the self-assessed tax receipts from taxpayers with some tax administration efficiency. Hence, we are targeting at least 1.5 per cent of the growth rate in revenues to come from enhanced collections from tax debts, expeditious settlement of tax disputes, raising of tax assessments, voluntary declarations by taxpayers.

A total of Rs 1.08 trillion, whereof Rs 980 billion by companies, are indeed held by Mauritians abroad, according to your investigations…

We have the relevant information and those who do not come forward and make a voluntary disclosure under the relevant scheme will be subject to enforcement action.  

However, a company or an individual that have assets abroad, accumulated from income derived outside Mauritius, not taxable in Mauritius, will not be liable to any tax in Mauritius.

Do you think it will be easy to get people to comply with these new regulations?

There is nothing new with these regulations. Mauritius tax system has been the same over all these years. Companies or individuals are bound to tax on worldwide-income basis, meaning income earned in Mauritius or income derived outside Mauritius but remitted to Mauritius. The only difference now is that MRA holds information about the accounts held in banks abroad from around 50,000 individuals and companies from Mauritius. 

In the enforcement of the Voluntary Disclosure of Income Scheme - Foreign Assets is the MRA inspired by US’s Foreign Account Tax Compliance Act (FATCA)?

Not exactly. FATCA is the initiative of the US government. They are concerned only about assets of US citizens. Any US citizen or US resident has to pay tax in US on income held anywhere in the world. Reasons why they look for accounts and interests held from their citizens and residents from banks and financial institutions all over the world. Countries have decided how they want to proceed with the sharing of these information. In Mauritius, and perhaps even in Africa, we were the first FATCA-compliant institution. Banks transfer these information to the MRA, MRA consolidates them and electronically transfers them to IRS in USA. So it is an automated, seamless system. We really don’t have any intervention in the process. Then, when we are talking about CRS, which is a multi-transnational effort, signatories of this protocol report information about bank accounts of non-citizens to their respective countries. About the 50,000 bank accounts held abroad, we have received information from all over the world.

Excise duties and environmental taxes are the second source of revenue for the MRA. What is the ratio of taxes related to the environment?

Excise duties are a very important source of revenue for the government. Over the years, the scope of excise duties has been widened to include environmental taxes or green taxes, with a view to influence consumer choices and behaviours. Environmental taxes regroup tax on plastic products, levy on coal and petroleum products, levy on energy inefficiency appliances (such as refrigerators, electric ovens, dishwashers, washing machines, air conditioners). In May 2019, the tax on plastic products has been extended to non-biodegradable disposable plastic containers (takeaway, plates, cups, etc.). The Environment Protection Fee is another environment tax on hotels, tourist residence, stone crushers, imported mobile phones, batteries for motor vehicles, and tyres. The green taxes mentioned above represent approximately 1% of the total MRA collections.

Are these taxes allocated to environment-related projects?

Environmental taxes collected at the MRA are transferred to the Consolidated Fund, that is, to government. I would also like to add on the issue of environment-related projects that the MRA is operating a refund mechanism for government in relation to waste PET bottles or PET flakes exported or waste PET bottles recycled into reusable goods. The rate of refund is Rs 15 per kg.

Is the mechanism regarding the levy of an Advance Recycling Fee (ARF) upstream from importers-manufacturer-sassemblers of electronic and electric products ready?

The Environment Protection Act, as amended, provides for an Advanced Recycling Fee on electrical and electronic equipment meant for home consumption, whether imported or locally manufactured, to be collected by the MRA. For that purpose, all importers and manufacturers of electric and electronic equipment shall be registered with the MRA. This measure will be implemented upon the gazetting of the regulations relating to the list of electrical and electronic equipment and the fee to be levied thereon.

In the last Budget, government decided to lower the tax rate to 10% for those earning Rs 40,000. What has changed in the new financial year?

Last year, government reduced the rate of tax for those earning less than Rs 50,000 per month. This year’s measure is more about correcting a distortion in terms of rate of tax applied for those earning less than Rs 50,000, and those earning around Rs 50,001. Not many people will be affected.

Is this measure paving the way for a progressive tax system?

In fact, we are almost operating a progressive tax system, even we have adopted different routes. We have negative tax rate, zero rate, 10% rate, 15% rate and 19-20% rate, with respect to subsequent thresholds of chargeable income.

An estimated amount of Rs 727 millions of drugs were seized by customs in the last financial year. Was it due to a more rigorous control or an increase in the volume of drug trafficking?

I can certainly say that we have reinforced control at the borders. The revamped strategy was initiated through the setting-up of the Customs Anti-Narcotics Section with skilled and experienced staff to combat drug trafficking and money laundering in Mauritius. It was followed by enhanced capacity building of our staff in drug identification, intelligence gathering, surveillance, and intervention. Greater cooperation and networking with local and international agencies, investment in tools and equipment such as scanners, CCTV cameras, fast interceptor boat, the marine tracking system and the expansion of our K9 Dog Unit were also part of the New Customs Drug Interdiction Strategy.

Speaking about control at borders, how is the MRA going to handle entrance of counterfeited goods on the Mauritian market, now that a fullfledged IP law is enforced?

The new IP law brings together under one enactment the provisions relating to the protection of industrial property rights. Although the law has been gazetted on 10 August 2019, it will come into force upon proclamation.

With regards to the enforcement of the IP law, the MRA has continuously amended sections 66A to 66E of the Customs Act which cater for enforcement of IPR legislation both at the border and inland.

The MRA may suspend infringing goods at the border and refer such cases to the right holder of the trademarks for legal proceedings within the statutory timeframe. Recently these sections were amended to enable MRA Customs to enforce IPR laws on the local market.

Based on profiling and targeting through the risk management basis, MRA Customs target IPR infringed goods both at the border and on the local market.

A handful of preferential fiscal regimes that has made the success of Mauritius as an IFC are currently being reviewed, under international taxation pressure. How does the future look for Mauritius? Is the worst yet to come?

Mauritius has always adopted a development strategy which is based on compliance with international standards. Thus, when the preferential tax regimes of Mauritius were reviewed by the Forum on Harmful Tax Practices (FHTP) under BEPS Action 5, Mauritius committed to amend or abolish regimes that were not in line with the FHTP standards.

For instance, the category 2 Global Business Licence regime as well as the deemed foreign tax credit regime linked to the Category 1 Global Business Licence and to segment B Banking activities were abolished. The major deficiencies noted were lack of substance, artificial definition of the tax base, and the fact that the regimes were not available to all companies. In replacement of the deemed foreign tax credit regime, Mauritius has introduced the partial exemption system and a new regime for banks. Both regimes were assessed by the FHTP and found to satisfy international norms since they have enhanced substance requirements. The tax reform implemented fits with the strategy of Mauritius to be recognised as a well-regulated, transparent and compliant jurisdiction. We expect Mauritius to continue attract good investment flows as it has over the years been able to position itself as a robust, transparent and reliable business-friendly jurisdiction for reasons going beyond tax incentives.

It is said that the Mauritian Freeport has already lost its edge, while the country is busy working on ways to meet the requirements of international taxation…

There are different schools of thoughts on the issue of using fiscal incentives to attract investment and promote economic growth. International organisations have been advising developing countries to avoid granting incentives as it deprives them of scarce tax revenue for resource mobilisation.

At the same time, the fiscal way is not always the best way to sustain the growth and sustainability of either a sector or an economy. Isn’t it?

On the other hand, countries not endowed with natural resources tend to justify the use of tax incentives to compensate for the lack of these resources and attract foreign investment. As you rightly pointed out, there is now a new hurdle when deciding to grant tax incentives for economic development – the incentives being contemplated have also to meet the criteria set out by the FHTP and the European Union, given our international commitments.

We are talking more and more of a cashless society. What does this imply for an agency like the MRA? Will it help the MRA with regard to tax collection?

Actually, there are three aspects. First, about collection of taxes by the MRA, we received 94% of our collections online. So we don’t deal much in cash. We are continually encouraging people to file their returns electronically. Transactions made in cash are high-risk transactions. Merchants can decide not to levy tax on eligible sales, not to declare tax levied or partly declared it. So, whenever society decides to encourage payments by debit or credit cards, mobile payments, or other digital-based transactions, then obviously revenues of the MRA will increase. Presently, percentage rate of merchant fee applied may be quite discouraging for merchants to adopt electronic payment system, but if commission-less payment instruments are proposed, like in many countries, the adoption rate of digital transactions and payments will potentially grow. In countries in Europe or America, mobile payment is popular even for transactions of one to two dollar, the purchase of a burger… Definitely this new consumption and cultural trend is paving its way in Mauritius. We have already 1.6 million credit cards in circulation. When growing soft payments will be introduced by financial institutions, definitely it will affect the revenues of the MRA, and there will be some increase in collection.

We have noticed a growing local trend for online shopping, mainly from international eshops. What is the role of the MRA with regards to this new consumption pattern?

Digital economy is already there. Digital payments are current for e-tickets, hotel bookings, online shopping, etc. We are studying to introduce some forms of tax on digital transactions, peer-to-peer lending/online advertising, and, at a later and third stage, on cryptocurrency.

We don’t want to be in a hurry. We are recruiting a data scientist and data analyst to assist us in finding and formulating a viable system to capture the potential tax opportunities in digital dealings.

We are in the midst of an electoral year, and general perception conveyed over time, namely by political opponents, is that resort to political interference is wider during the period from governing regime. Have you ever been throughout your long career at the helm of the MRA subject, your staff, or your agency, to any form of political pressure? I have been at the MRA since 2006, and we have had many elections up to now, and I can very easily assure you that there has never be any political pressure or political interference at the MRA. In fact, we are lucky that we have always been allowed to act fairly, objectively and transparently.

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