Tax perspective

The National Budget 2016/2017 focuses on ten key strategies including fostering a wave of modern entrepreneurs, entering a new economic cycle focusing on innovation, boosting exports and private investments, and ensuring macro-economic stability and sound public finances.

In the wake of the recent protocol in relation to the revision of the India/Mauritius Tax Treaty, it comes with no surprise that the Minister has announced measures to revamp the Global Business Sector.

Global companies registered as Global Headquarters Administration companies in Mauritius will be granted a tax holiday of 8 years, whilst Treasury Management Centres, Investment Banks and law firms established in Mauritius will enjoy a tax holiday of 5 years. Considering that, at present, companies registered as Regional Headquarters enjoy partial tax exemption, it begs the question whether the tax holiday will have the desired effect. More importantly, in the present international tax environment, the tax incentives for global business companies will be attached to substance requirements.

Income tax exemption has also been extended to Asset and Fund Managers managing a minimum asset base of USD100m. This measure paves the way to attracting competencies to make Mauritius a more robust international financial centre.

The budget also provides measures for SMEs: the extension of the 8 year tax holiday to new enterprises set up by individuals or co-operative societies; the removal of the Rs100m investment threshold in plant and machinery to qualify for the investment tax credit for specified industries; and the increase in the rate of the investment tax credit from 5% to 15% for companies engaged in manufacturing of textiles, wearing apparels, ships and boats, computers, pharmaceuticals and films.

On the administrative front, the Mauritius Revenue Authority (MRA) is taking on the responsibility to collect social security contributions. This is a clear step towards the harmonisation of collections from taxpayers.

With the increasing number of tax disputes, the introduction of an Alternative Dispute Resolution (ADR) mechanism for assessments exceeding Rs10m should help reduce the burden on the Assessment Review Committee and the Supreme Court. This assumes an effective mechanism to achieve the expeditious resolution of tax disputes. Perhaps, an ADR mechanism can be put in place to cater for low-value assessments.

There will now be a time limit of two years to submit amended tax returns. This seems an unjust measure considering that the MRA can raise assessments for the past three years. In contrast, it is a fair measure to protect taxpayers from penalties and interest on disputed tax assessments that relate to doubtful interpretation and application of the tax laws.

From a VAT perspective, a non VAT- registered person sourcing services from abroad will be required to apply VAT on the services and remit same to the MRA. Whilst the measure is aimed at bringing a level playing field between domestic and foreign businesses, it would increase the administrative burden on taxpayers.

Overall, the National Budget 2016/2017 brings about some welcome measures for better tax administration as well as tax incentives aimed at stimulating the economy. However, certain measures announced appear to go against the objectives of tax fairness and simplication.