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Budget brief 2006/7
The Deputy Prime Minister and Minister of Finance, Rama Sithanen, presented his first budget since taking office on July 4, 2005. The budget speech was centered towards getting the economy back on track despite huge difficulties facing the Mauritian economy, such as, reduction in the guaranteed price of sugar, erosion of the textile quota and the hike in petrol prices. Despite the gloomy outlook, the Minister set out the following objectives:
1. Encourage investments in new pillars of the economy
2. Democratize growth to ensure low income workers and the unemployed participate in the recovery
3. Release growth by eliminating wastage
The following measures were set out:
a. Investment facilitation
b. Opening the economy
c. Labour market reform
d. Social policies
e. Controlling of wastage and securing efficiency gains in the public sector
f. Fiscal consolidation and discipline
g. Tax reform
h. Broadening the circle of opportunities
Global Business Sector
The Minister announced the following measures:
1. Expanding the range of banking activities conducted from Mauritius by making amendment in the Banking Act to provide for private banking
2. Review the commercial law to provide for a mode for notification in the case of assignment of debts and on the pledging of shares that will encourage the use of Mauritius in major cross border financial transactions
3. Extend with slight modifications the regime of the Gage Special presently existing in favour of banks to transactions involving global business companies
4. The Financial Services Commission will encourage the exchanges to create special boards for the listing of global business companies
5. Amending the regulatory framework to enable global business management companies to provide fund administration services to funds established in other recognized financial centers.
6. The Financial Services Promotion Agency, body set up to promote the global business sector has now been integrated in the Board of Investments, agency for attracting foreign direct investments
7. The Law Practitioners Act will be amended to allow the formation of law corporations, in view of attracting international law firms to the jurisdiction
- The residence and work permits will be combined into an occupational permit for (i) investors getting more than Rs.3 million of annual turnover (USD 100,000), (ii) professional offered employment paying more than Rs30,000 (USD 1000) a month and self employed generating an annual income of Rs600,000 (USD 20,000) a year.
- All foreigners applying for residence permits will be able to provide a health certificate issued by an accredited doctor instead of a health clearance from Government hospitals
- The occupation permits for investors and professionals and residence permit for their dependents will be issued within three working days.
Despite making bold reforms in the income and corporate taxes, all the exemptions attached to the global business sector have not been amended.
Corporate tax rate
The Minister announced his intention to have only one single tax rate of 15% for all sectors and activities in the economy. Companies currently subject to the tax rate of 25% will now be subject to tax at 22.5% 2006/07 and the rate will subsequently be reduced by 2.5% annually so as to achieve the single rate of 15% by income year 2009/10. Global business companies are unaffected by this measure as they are being taxed at 15%. However, freeport companies which were currently exempt will now be subject to tax at 15%.
As from the next financial year the basis for computing capital allowances on new capital expenditures are changed from straight-line method to reducing balance method for all assets except for non-hotel buildings. The rates will be 30% for hotels, 50% for electronic and computer equipment and 35% for other plant and machinery. The ceiling for equipment and machinery to be fully expensed in the first year will be raised from Rs.10,000 (USD 333) to Rs.30,000 (USD 1,000). Investment allowance of 25% is being abolished. There is a transitional period of three years
Currently any tax losses could be carried forward indefinitely. In the budget speech the Minister has now announced that there will be a five-year time. He has also stated that legislation will be introduced such that tax losses accumulated as at 30 June 2006 can only be carried forward for a further 5-year. Any unused losses will therefore be wasted. Tax losses arising from the new regime of capital allowances will continue to be carried forward indefinitely and without restriction.
Tax credits and tax holidays
All existing tax provisions relating to tax credits and tax holidays are being removed. Note however due provisions will be made to grandfather these incentives for existing beneficiaries.
Alternative Minimum Tax (AMT)
The AMT introduced two years ago will be raised from 5% to 7.5%. Note, however, the way the legislation is currently worded, it will not impact global business companies. AMT is applicable to certain categories of companies, which make profit, distribute dividends but do not pay income tax of at least 7.5% of its accounting profits. Such companies will be required to pay income tax amounting to the lower of 7.5% of its book profits (excluding impact of any positive or negative revaluation of securities and fixed assets) or 10% of the dividends (including any amount distributed by way of shares).
Value Added Tax
The rate and tax base of the VAT remains unchanged, but the annual registration turnover has been lowered to Rs2,000,000, from Rs3,000,000. These are not expected to have any impact to Global Business Companies as the services are performed and utilized outside Mauritius, hence does not constitute taxable supplies.
Personal Income Tax
All reliefs, allowances and deductions that have been granted in recent years have now been consolidated into a general exemption threshold for the following categories of taxpayers:
A. Those who do not have a dependent Rs. 215,000
B. Those who have one dependent Rs. 325,000
C. Those who have two dependents Rs. 385,000
D. Those who have three dependents Rs. 425,000
The tax rates have been reduced to two, namely, first Rs500,000 of chargeable income at 15% and the remainder (except interest income) at 22.5%. Chargeable income from interest will be capped at 15%. The top rate of 22.5% will be reduced annually by 2.5%, so that by income year 2009/10 there will be a single tax rate of 15%
The budget proposals are subject to amendments during parliamentary debates and will be introduced by the Finance Act 2006. To obtain a broader appreciation, readers can access the full budget speech on http://mof.gov.mu/English/Pages/default.aspx
Disclaimer : The information in this tax brief has been prepared by Multiconsult Ltd for general reference only. While all reasonable care has been taken in the preparation of this brochure, Multiconsult Ltd accepts no responsibility for any errors it may contain, whether caused by negligence or otherwise, or any loss, however caused, sustained by any person that relies on it. Readers are advised to consult with professionals advisors before taking any action. Multiconsult will be pleased to discuss any specific issues.