Tax Perspective

The biggest personal tax change affects higher earners. Income above Rs1m and up to Rs12m will be taxed at 20%, while income above Rs12m will be taxed at 35%. This replaces the previous fair share contribution for individuals.

That is understandable, but not risk-free. Higher personal taxes can affect behaviour, especially for mobile professionals and investors. In a world where capital and talent are mobile, what impact will this have on us as a country remains to be seen. More so when we have traditionally marketed ourselves as a low tax jurisdiction.

You would expect an inverse relationship between higher tax rates and voluntary (and potentially fair) compliance. 

Some of the most important tax changes are not about headline rates. They are about widening the tax base and tightening collection.

One example is the treatment of non-resident businesses supplying software, licences and remote maintenance into Mauritius. Is this not akin to a digital services tax? Similar lines of action have resulted in Tarriff Wars in the very recent past due to pushback from certain countries. As we know, those taxation regimes were not implemented by most countries in the end. 

The Corporate Climate Responsibility Levy is becoming more of a burden to an already struggling International Financial Centre (IFC). We are now saying that this levy, indeed a disguised tax, can no longer be offset by foreign tax credits. From an IFC perspective, this means that the tax rate has effectively increased. 

The real question is whether the levy is being used for its stated purpose, especially if proceeds flow into the general public purse rather than a ring-fenced climate fund.

There have also been changes to the domestic minimum tax rules for large multinational groups. Some correct gaps in the earlier framework, including investment funds, intra-group adjustments, filing deadlines and penalties. In that sense, they are corrective.

But it is disappointing that implementation has not been paused or postponed. These are complex international tax rules, with competitiveness implications for Mauritius as an IFC. The real question to be asked is whether the timing is right. In a world where our main IFC client base - being the USA, India and China – have, in their wisdom, deferred the implementation of Pillar 2. The key question is, why are we rushing to do this? In the year since QDMTT was announced in the previous Budget Speech, we have seen an exit from certain groups which had been active in the IFC for the last two decades. 

The biggest long-term reform is pensions. From 01 January 2027, the Basic Retirement Pension will be replaced by the State Age Pension. It will be means-tested, with full entitlement where monthly income does not exceed Rs14,000 and no pension above Rs50,000. The amount will also depend on when it is taken.

Politically difficult, but financially necessary – this is a welcome and bold change. 

Overall, this Budget keeps VAT stable, asks more from those able to pay but does not answer some key questions about our future as an IFC. The question is whether the economy can absorb these measures without losing momentum and without weakening the certainty on which investor confidence depends.