Mauritius Budget 2006-07
e-brief*
Reaction by Robert Bigaignon
Country Leader
PricewaterhouseCoopers
The theme of the 2006/07 Budget might best be described as a collection of bold and major reforms (40 in all) in order to stimulate growth and create new jobs. This, the Minister of Finance feels, will in turn solve a number of related difficulties.
The Minister expects employment creation through:
- Investment Facilitation in order to make it far easier to start up a business
- Major Labour Market Reforms
- Relaxation of the rules and regulations concerning employment of foreign expertise
- Simplifying both direct and indirect taxes
The Minister has also sent a clear message that Government wants to control wastage and secure efficiency gains in all areas of public sector. He has called for Responsible Stewardship of Public Money.
Other important measures have also been announced and they include amongst others:
- Major tax reforms and immediate lowering of both the top rates of Income Tax and Corporation Tax to 22.5 per cent and then down to 15 per cent by the fiscal year 2009/2010
- Introduction of a National Residential Property Tax
- Reduction of duties on Motor vehicles
- Extending retirement age to 65
The Budget always-rightly-provides high priority to the economy and to the Budget Deficit which is set at 4 per cent of GDP, compared to 5.5 per cent last year. Growth in the current year is not so good (3.5 per cent compared to 5 per cent in SADC and 6 per cent in Comesa). However, for 2006/07, the Minister is expecting better performances across all sectors which would pull GDP growth to around 5 per cent.
The Budget has a decisive tone and is ambitious. It seeks to instil greater discipline and stop the rot. If it is followed by persistent monitoring of public expenditure and quickly translates into renewed business confidence it may well usher in a much-needed era of growth.
From a tax perspective
Reaction by Ram Luchmun Roy
Tax Director, PricewaterhouseCoopers
From a tax perspective, this is by far the most significant budget that has been presented over the past two decades. It contains a number of innovative and bold measures aiming to give a new impetus to the economy. The reduction of income tax rates, both for companies and individuals, and the phased lowering of rates to 15% in the next three years, are indeed commendable and should put Mauritius back on the high growth track.
The majority of individual taxpayers will be pleased with this budget as it announces lower tax rates as well as standardized deductions that will exclude from tax families earning up to Rs 32,500 a month. As far as salary earners are concerned, the Minister of Finance announced the introduction of a cumulative system of PAYE which provides for the exact amount to be withheld so that taxpayers are spared from the hassle of going through the refund process.
In a bid to make income tax progressive, the Minister also announced the introduction of a National Residential Property Tax. This tax will be on a self assessment basis and will be calculated by reference to the surface area of a residential land or flat owned by the taxpayer.
Like individuals, corporate taxpayers will find their tax rates lowered in phases to 15% over the next three years. Thus, all corporate businesses including freeport companies will pay tax at a standard rate of 15% as from 01 July 2009. The aim is to ensure level playing field for all companies.
In the wake of the new proposals, the system of capital allowances is also being changed so that the basis of computation will shift from straight line to declining balance. Also, the 25% investment allowance on new assets currently available will be abolished.
Another major proposal of the Minister is the rolling out of the Deduction at Source System to other types of income such as interest royalties, payments to contractors, etc. This is quite new to the Mauritius taxpaying community and some may remember that an attempt to apply this system in the past has proved unsuccessful. So, unless taxpayers are properly educated and the authorities are adequately prepared in terms of logistics, the system may prove difficult to apply.
Finally, the coming into operation of the MRA in July this year and the various administrative measures announced by the Minister including penalties for non-compliant taxpayers constitute a clear signal to those concerned that Government really means business.
*connectedthinking
