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The 2023-2024 budgetary measures aim at making Mauritius an even more competitive and attractive destination to work, together with the ambition to attract investments and strengthen the economy. Taxation is one of the premise to attain this aim.
We will now move to a progressive tax system to make it more equitable and fair for taxpayers. This represents a major reform to the long-standing flat rate system. What is also significant is the abolition of the solidarity levy which undermined the competitiveness of Mauritius.
With an income tax rate, coupled with a solidarity levy, that can go up to 40%, Mauritius had lost its reputation of a low tax jurisdiction. This was also one of the causes of an exodus of talents. It is encouraging that this tax reform comes together with a streamlining of the immigration rules to attract new talents in the country.
The move towards a progressive tax regime brings more equity and fairness to the system.
The rate of levy applicable to Telephony Service Providers on the turnover component will be reduced from 1.5% to 1%. However, the 1% levy will apply even if the Telephony Service Provider is in a loss making situation. While there are attempts, in the Budget, to move towards a more equitable and fairer tax system, imposing a levy on the turnover of a company making losses does not espouse this philosophy.
Banks with a taxable income of more than Rs1.5bn will be taxed at a flat rate of 15%, while the rate will be 5% for taxable income below Rs1.5bn. It has now been clarified that the incentive tax rate of 5% has ceased to apply. This means that large banks will have to amend their tax returns for the year of assessment 2022-2023, which comes as a blow to the banking industry. In addition, the rate of levy under the VAT Act has increased to 5.5% for large banks.
Since its introduction in 2006, the list of payers subject to Tax Deduction at Source (TDS) has widened. Insurance companies will need to apply TDS on payments made to panel beaters and spray painters for repairs of motor vehicles of policy holders. Also, interior decorators/designers will be subject to TDS.
No doubt TDS has enabled the Mauritius Revenue Authority (MRA) to increase its tax base and it is not a surprise to see an increasing number of service providers being subject to TDS in the future. In this context, the collaboration of the MRA is much needed to make the TDS system as seamless and flexible as possible with expeditious TDS refunds, where applicable.
Among others, one of the attributes of an effective and attractive tax system is a business-friendly litigation process. It is a fact that the tax litigation process in Mauritius is struggling with the increasing number of cases and this is negatively impacting Mauritius as an international financial centre. Tax cases are taking, in some cases, years to be resolved. The initiative to revisit the tax appeal process is welcomed, which will hopefully provide some useful and effective solutions to the problem.
The Tax Arrears Payment Scheme (TASS) will be re-introduced. This is yet another support on the part of the Government to reduce tax disputes and increase tax collections. However, we make an appeal that this measure benefits all taxpayers who are willing to settle their tax matters.
We expected the introduction of tax incentives to position Mauritius as a destination of choice for virtual asset service providers especially in the wake of the Virtual Asset and Initial Token Offering Services (VAITOS) Act. However, the Budget remained silent in this report.
An effective tax system is key to the economic development of a country. It is encouraging to see that the measures announced in the Budget Speech 2022-2023 have restored some of the attributes of Mauritius as an attractive financial centre. We should, however, continue on that route in an ever-changing and competitive tax landscape.
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Anthony Leung Shing, ACA, CTA
Country Senior Partner, PwC Mauritius
Tel: +230 404 5071
Dheerend Puholoo, ACCA
Tax Leader, PwC Mauritius
Tel: +230 404 5079