Be tax compliant

Traditionally, the Mauritius Revenue Authority(MRA) calls for taxpayers to meet their tax obligations (i.e. registering as a taxpayer, filing tax returns and making tax payments) before checking for compliance, errors and omissions. Complexity increases the likelihood that taxpayers make inadvertent mistakes in calculating their tax liabilities. Costs of complexity go far beyond the direct compliance costs in the form of time or money that are imposed on taxpayers struggling to understand and comply with the tax laws. With the system of e-filing which is being adopted almost worldwide, the risk of errors is considerably reduced but the risk of compliance remains, as the system cannot prevent defaulting taxpayers.

Creating an environment that promotes tax compliance is an approach promoted by the Orga-nisation for Economic Co-operation and Development (OECD), the principles of which the MRA adopts and follows. The OECD approach addresses compliance processes ‘right from the start’ for the tax authority. This represents a measure for the MRA to get taxpayers on the right track from the beginning. The MRA must then consider what motivates taxpayers to comply or not to comply, as tax is unlikely to be the top priority for taxpayers. Hence, making it easy to comply by reducing complexities and lengthy administrative procedures is an enhancement for taxpayers.

Getting it right from the start means far less trouble down the line for both the MRA and the taxpayer. Research shows that if individuals and businesses feel they are treated fairly and with respect, they are more likely to comply with the laws.

It is a duty by law to register as a taxpayer with the MRA as an individual if you earn above the threshold or as an entity in business whether deriving profit or not. By registering and filing your tax returns regularly within the prescribed dates, you will be a proud contributing citizen or entity. By complying for income tax (individuals and entities), employees’ tax/PAYE (employers) and value added tax (businesses), you are making sure that you are staying with the law.

Presently, the annual income tax return is submitted without any accompanying documents or accounts, especially when submitting it electronically. However, the taxpayer must have the information at hand to produce when requested by the MRA. Otherwise, the MRA may estimate additional tax to the tax declared and issue an assessment accordingly to claim the additional tax.

The MRA can deregister non-compliant VAT registered persons who fail to submit VAT returns for prolonged periods. The failure is subject to penalties even though the VAT returns could have been nil returns.

There is no requirement to submit invoices with VAT returns, but MRA queries can be expected. VAT registered persons should actively monitor and check whether purchase invoices received and sales invoices required to be raised meet all the legislative requirements of a VAT invoice.

The Taxes Acts contain a general anti-avoidance provision whichgives the MRA extensive powers of audit and inspection. If the MRA reaches the conclusion that you have not complied correctly, the result is the imposition of additional tax coupled with penalties and interest. Penalties are imposed for late submission of tax returns, under declaration of tax liabilities and tax evasion. Interest is imposed from the date the additional taxes were due to the date of settlement, no matter whether the taxpayer lodges an objection to the MRA or a representation to the
Assessment Review Committee.

The Income Tax Act has been amended, subject to proclamation, to provide a three year limit instead of four years for the MRA to review a tax return and, secondly, to allow a taxpayer to make a claim for a refund of excess income tax paid within three years instead of four years from the end of the year of assessment of the overpayment. However, records must be kept for a period of five years.

Similarly, the VAT Act was also amended for the MRA to review a VAT return in respect of a period before three years, instead of five years, immediately preceding the last day of the taxable period in which the liability to pay tax arises. There is the requirement, similar to income tax, to keep records for a period of five years.

Taxpayers can benefit from these provisions by not having a tax audit of their tax affairs provided they are fully compliant. Non-compliant taxpayers may find themselves being audited beyond the three year time limit especially if fraud or evasion is detected by the MRA. On
average, it takes longer to comply with VAT than it takes to comply with corporate income tax. The penalties for VAT non-compliance is harsher than for income tax.

The following are some areas of concern which taxpayers must give attention to so that their tax returns are not under the magnifying glass of the MRA:

•        Fringe benefits and foreign income not being declared.

•        Earnings disguise.

•        Artificial losses and deductions.

•        Incorrect declaration of revenue profits as capital in nature.

•        Input VAT claimed without declaring VAT on trade income.

To conclude, I would like to quote Benjamin Franklin’s famous phrase that ‘an ounce of prevention is worth more than a pound of cure’ which is widely recognised in the world of medicine. It seems increasingly relevant to the world of tax compliance.