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Mauritius Unveils 2011 Budget

Monday, November 22, 2010

Mauritian Finance Minister Pravind Jugnauth has unveiled details of the country’s 2011 budget, designed to rebalance growth, to boost productivity, and to consolidate social justice, and providing for a number of key fiscal measures, designed to contain the budget deficit at 4.3% of gross domestic product (GDP).

Emphasizing the need to increase expenditure as a result of the government’s economic and social policies, Finance Minister Jugnauth stated that failure to adjust tax policy accordingly would result in a budget deficit of 5.4%, taking the country’s debt “dangerously close to the unsustainable zone”. Responsible fiscal stewardship, he added, is the bedrock of the government’s actions to place Mauritius on a modern development path.

The 2011 budget contains the following fiscal measures:

  • Regarding personal income tax, a solidarity income tax is to be introduced and imposed on individuals with total income, including exempt income, of over MUR2m (EUR49,362). These higher income earners will be charged 10% on their exempt income;
  • A measure providing for the abolition of tax on interest earned. The government aims to reinstate interest as exempt income in the Income Tax Act with effect from January 1, 2010;
  • In accordance with the budgetary proposals, the tax withheld at source on interest earned during 2010 is to be refunded in the form of a tax credit on 2012 and 2013 tax returns. Unused tax credits will be refunded in the form of cash in 2013;
  • The government plans to introduce tax breaks for taxpayers investing in their first home, provided that they are not subject to the solidarity income tax or currently benefiting from the new housing schemes;
  • Tax breaks will also be introduced for parents investing in their children’s education;
  • The National Residential Property Tax (NRPT) is to be abolished;
  • The government plans to increase the passenger fee levied on tourists;
  • To maintain the solidarity efforts provided by profitable banks in Mauritius, the special levy imposed on banks is to increase to 3.4% of profits and 1% of turnover, and will continue to apply for the next two financial years;
  • The special solidarity levy imposed on the providers of fixed and mobile telephony services is to be maintained for the next two financial years;
  • In a bid to resolve anomalies and deviations from international best practice in the country’s value-added tax (VAT) legislation, a provision is included in the 2011 budget to move selected items, including wheat flour and bran, from the list of zero-rated supplies to exempt supplies from March 1. Producers of such goods will be able to recover input tax when they export;
  • As regards gains from the sale of land and immovable property, a reduced rate of 10% is to apply to individuals. Individuals will also benefit from an exemption on the first MUR2m of gains. The tax will not apply to land or to immovable properties received by way of inheritance or transferred by parents to their heirs.
  • The amount of income tax exemption for lump sums provided on retirement and for severance is to be increased from MUR1m to MUR1.5m.

Other fiscal measures outlined by the finance minister in his budget speech, designed to boost productivity and to support small and medium planters, are as follows:

  • Plans to reintroduce the tax exemption on the first 60 tonnes of sugar for small planters with less than 15 hectares of land, provided that they are solely reliant on sugar income;
  • Plans to abolish the 15% income tax on the surplus generated from sugar operations by Cooperative Credit Societies (CCS);
  • Where small and medium planters regroup their land assets, they will benefit from their individual tax exemptions, and all profits and gains derived from transactions in land and other immovable property, will be taxed at the rate of 15%;

Marking a fundamental shift in policy, the government aims to amend the country’s existing law to expand the scope for corporations holding a category 1 Global Business License to extend their operations to the domestic economy. Consequently, such companies will be allowed to conduct business both inside and outside Mauritius instead of outside Mauritius only, as is currently the case. For their foreign operations, companies will continue to benefit from foreign tax credits, while for their domestic operations they will pay the same tax as other domestic corporate entities.

The government has also confirmed plans to change the system of motor vehicle taxation to fully reflect the polluter pays principle and to be based on a carbon dioxide emission standard, reflecting the new practice worldwide. To this end, the International Monetary Fund is to conduct a study of the present system to recommend appropriate changes to excise duty, road tax and registration duty on motor vehicles. In light of any proposed recommendations, due to be submitted in March 2011, the government will then decide on the changes to be made. The government also plans to modulate taxation to promote the use of more energy efficient appliances.