Surveies by the World Bank referred to the accomplishments of the Mauritanian economic system as the economic miracle. Exceeding fortunes have resulted to such accomplishments in a reasonably short period of clip to fall in the middle-income states. Mauritius has been successful in accomplishing rapid growing and significant variegation of a formerly mono-agricultural economic system. Sound economic direction and a far-sighted development scheme have permitted the state to diversify its export and productive bases from a sugar-based economic system into one based on five pillars of development: agricultural, fabrics, touristry, information and telecommunication engineering and fiscal services. Against this background the corporate sector plays an of import function in footings of, among others, investing, employment coevals, export net incomes, part to the cost of public services. Hence the demand for a more competitory, just, sustainable and stable corporate revenue enhancement system that fosters concern investing and economic growing.
3.1 Corporate Tax in Mauritius
The revenue enhancement of resident Mauritanian companies is governed by the Income Tax Act 1995 ( a consolidating piece of statute law including the income Tax Act 1974 and several subsequent Finance Acts ) , as amended, which is well based on UK revenue enhancement jurisprudence. The rates of revenue enhancement and of tax write-offs available are fixed by a charging Act, the Finance Act, enacted yearly. However, there are many particular revenue enhancement governments using to peculiar types of company: companies runing offshore under the Financial Services Act 2007, supervised by the Financial Services Commission ) , freeport companies, and offshore trusts are governed by the Offshore Legal and Tax Regimes. Companies keeping assorted types of certification under the Industrial Expansion Act 1993 and companies that invest in ‘incentive ‘ companies are covered by the Invest Incentive Schemes.
A company is treated as occupant in Mauritius if it is incorporated in Mauritius or if it is managed and controlled from Mauritius. A resident company is taxed on its world-wide income, which includes foreign-source income.
Taxable income includes rents, dividends, royalties and involvement. However, dividends paid by ‘tax inducement ‘ companies, companies listed on the stock exchange, and companies which pay the full revenue enhancement rate are exempt from revenue enhancement in the custodies of the having stockholder, whether occupant or non. There is no capital additions revenue enhancement. ( Mauritus Domestic Corporate Taxation, 2011 )
3.2 Development of Corporate Tax reforms
It is deserving foregrounding some of import alterations that took topographic point in the corporate revenue enhancement system prior to the major reforms of 2006.
In 1984-85, to hike investing and employment creative activity the system of corporate revenue enhancement was basically changed to convey it more in melody with the development needs. The revenue enhancement, which was so charged merely on retained net incomes of companies, was reduced from 55 % for public companies and 66 % for private companies to a unvarying rate of 35 % applicable to all company net incomes before distribution of dividends. It was believed that the bing high rates of company revenue enhancement non merely represent a psychological deterrence to possible investors, but besides promote revenue enhancement equivocation. Furthermore, another type of revenue enhancement inducement was introduced for the export-led sectors. A company would profit by 2 % decrease in the revenue enhancement rate for each 10 % of its turnover which was exported capable to a maximal benefit of 10 % . Thus any company exporting 50 % or more of its turnover would pay revenue enhancement at the rate of merely 25 % . ( Budget Speech 1984-85 )
In 1985-86 all companies keeping an Export Enterprise Certificate, an Export Service Certificate, a Development Certificate, a Hotel Management Service Certificate, or an agricultural Development Certificate were required henceforth to pay at the nominal rate of merely 15 % . Previously an EPZ company was basking holiday revenue enhancement for the first 10 old ages and was nonexempt at half the normal rate during old ages 11 to 15 and a one-fourth of the rate during old ages 16 to 20. Furthermore, a company exporting 100 % of its turnover would acquire a 20 % revenue enhancement discount and would pay the nominal rate of 15 % . ( Budget Speech 1985-86 )
In 1988-89 Housing Development Companies engaged in the building of lodging units for the lower and in-between income groups were charged at the decreased rate of 15 % . ( Budget Speech 1988-89 )
As announced in the budget address 1990-91, companies engaged in the electronic sector were charged at the decreased rate of 15 % . The strategy for the export -led sector was besides improved. A company exporting would pay revenue enhancement as follows:
Between 10 % up to 30 % of its turnover: 25 %
Between 30 % up to 50 % of its turnover: 20 %
More than 50 % of its turnover: : 15 %
Furthermore, to promote companies to put in capital intensive engineering, all foreign exchange additions or losingss on foreign loans used for the purchase of such equipment were allowed in the calculation of capital allowances.
In 1992-93 the assorted bundles of inducements available to the productive sectors of the economic system were streamlined. The bing 12 different strategies which had evolved over the last two decennaries were grouped into merely three classs as follows:
Class A: All companies chiefly in the offshore sector were non apt to revenue enhancement.
Class B: Companies with inducements certificate apt to corporate revenue enhancement at the rate of 15 % .
Category C: All companies which pay corporate revenue enhancement at normal rate ( i.e 35 % )
The bing Investment allowance was increased from 20 % to 25 % . Enterprises were allowed to claim capital allowance up to 125 % in industrial premises, new machinery and works. Even the coach companies benefitted this allowance. ( Budget Speech 1992-93 )
In 1993-94 companies engaged in high engineering activities were allowed to subtract from their indictable income 100 % of their pre-operational disbursals. Wholly-owned subordinates were allowed to put off any loss they may incur against the net incomes of their parent company. ( Budget Speech 1993-94 )
In 1994-95 coach companies had their corporate revenue enhancement reduced from 35 % to 15 % to be at par with the EPZ. The 10 % revenue enhancement recognition was extended on capital outgo under the Modernisation and Expansion Enterprise Certificate Scheme to cover investing on high-end package. ( Budget Speech 1994-95 )
In 1995-96 the revenue enhancement derived function between companies in the offshore sector and domestic companies were removed so that they were apt to the same rate applicable to incentive companies ( i.e 15 % ) . A unvarying corporate revenue enhancement rate of 15 % was besides set for fabrication endeavors in replacing of the different rates which were antecedently runing from 15 % to 35 % . ( Budget Speech 1995-96 )
In 1996-97 the 15 % corporate revenue enhancement on EPZ companies was abolished. As at that twelvemonth Mauritius had signed 20 Double Taxation Agreements of which 14 had been ratified. ( Budget Speech 1996-97 )
In 1997-98 involvements earned by offshore companies on call and sedimentation histories with offshore and domestic Bankss were exempted from income revenue enhancement. A Fishing Development Certificate Scheme was introduced and investors of this sector benefitted from reduced corporate revenue enhancement rate of 15 % . In the touristry sector the current rate of one-year capital allowance was raised from 5 % for little and 10 % for big hotels to a standard rate of 20 % to rush up the procedure of upgrading. Double tax write-off was allowed for disbursals incurred on selling and promotional activities abroad. ( Budget Speech 1997-98 )
In 1998-99 companies puting in regional member states were allowed to profit from financial inducements under the Regional Development Certificate Scheme. In position of the harmonization of revenue enhancement in the fabrication sector, as from 2000/2001 EPZ companies were required to pay 15 % revenue enhancement as applicable to other fabrication companies. The rate of the Hotel and Restaurant Tax was reduced from 10 % to 4 % as from 7th September 1998 and 2 % as from 1st July 1999 and was announced to be removed from 1st July 2000. To rationalize the investing inducement strategies, the 15 % of corporate revenue enhancement was extended to companies in the agricultural, fabrication and hotel sectors, whether they are holders of incentive certifications or non. ( Budget Speech 1998-99 )
In 1999-2000 a 15 % revenue enhancement rate was allowed for all new companies, trusts and Bankss registered in our seaward legal power. ( Budget Speech 1999-2000 )
In 2000-2001 the rate of corporate revenue enhancement was reduced from 35 % to 25 % . Besides, as from 1 July 2000 to level the playing field, the rate of revenue enhancement for all seaward corporations including seaward Bankss was 15 % like any other incentive company. The rate of corporate revenue enhancement was reduced from 35 % to 15 % for eating houses, for circuit operators and for professional diving Centres in add-on to the remotion of 2 % hotel and restaurant revenue enhancement. . ( Budget Speech 2000-2001 )
In 2004-2005 an Alternative Minimum Tax on companies was introduced. ( Budget Speech 2004-2005 )
In 2005-2006 the strategy of 10-year revenue enhancement vacation and particular revenue enhancement recognition of 60 % of equity investings made in whirling companies was extended to cover weaving and dyeing activities. ( Budget Speech 2005-2006 )
The income revenue enhancement system of Mauritius had become really complicated on history of its legion revenue enhancement interruptions and freedoms and offered huge chances for maltreatment and revenue enhancement turning away. It led to unfairness and inefficiency and was biased against little endeavors. Such system was unjust and it was besides impeding the outgrowth of a fully-integrated economic system. Furthermore, some of the freedoms were non merely corrupting the revenue enhancement government but falsifying resource allotment and taking to suboptimal utilizations of economic resources. This was taking to inefficiency in the economic system that undermined over planetary fight and depressed FDI which was booming elsewhere in the part. ( Budget Speech 2007-08 ) )
3.2.1 Mauritius Investment Incentive Schemes
Tax inducements are being phased out as portion of a revenue enhancement reform programme aimed at uniting and simplifying the Mauritanian revenue enhancement government in line with the recommendations of the IMF. . Incentive strategies were ab initio set up by the Industrial Expansion Act 1993 for a figure of sectors. Companies profiting from such strategies are frequently known as ‘incentive ‘companies: Mauritanian companies which invest in ‘incentive ‘ companies can handle portion of their investing as an disbursal against revenue enhancement. The inducements included chiefly 15 % corporate revenue enhancement, freedom from imposts responsibility and freedom from keep backing revenue enhancement. Some of the more of import strategies have traditionally been as follows:
Pioneer Status Enterprise
Industrial Building Scheme
Hotel Development Certificate
3.2.2 Major Tax reforms 2006 onwards
The major revenue enhancement reforms were brought following the passing of the Finance Act 2006. This Act provides for execution of steps announced in the Budget Speech and for beef uping and streamlining of certain other commissariats associating to gross, public finance and banking and fiscal services. As portion of the scheme to heighten the fight of Mauritius, the revenue enhancement system was revamped. These include, among others, the followers:
Capital Allowances – Level playing field and improved governance/ less discretion.
Investing allowances on capital outgo were abolished.
Annual allowances were extended to expenditure incurred on the acquisition, building or building of clinics, shopping promenades, offices and salesrooms, eating houses and amusement premises, in line with Government ‘s scheme to travel towards a services economic system.
Businessmens can claim full tax write-off of capital disbursals that do non transcend Rs. 30,000, such as a personal computing machine.Previously that figure was Rs.10,000.
Allowable tax write-offs and revenue enhancement vacations – Level playing field
Tax write-offs, apart from the normal disbursals linked with production of income, were removed, except for the 200 % tax write-off for selling and promotional disbursals granted to a company in the touristry sector or engaged in export activities. However, as announced in the budget address 2012, this dual tax write-off was abolished with consequence from 1st January 2012.
All bing commissariats associating to revenue enhancement credits ( investing, export, etc. ) and revenue enhancement vacations were eliminated. However, it was announced in the budget address 2012 that the income revenue enhancement freedom to Freeport operators would go on to be granted indefinitely.
In the context of the Empowerment Programme, a new four- twelvemonth revenue enhancement vacation strategy for little concerns converted into a company and which registry for the first clip with the Mauritius Revenue Authority was introduced.
Tax losingss: Jobs and equity
Lone losingss that are attributable to claims under the new government of one-year allowances could be carried frontward.
For other types of losingss, a clip bound of 5 old ages was allowed to transport frontward and set-off against net income.
Losingss accumulated as at 30 June 2006 were allowed to be carried frontward and put off against indictable income for a maximal period of 5 old ages, that is, up to June 2011.
Flat corporate revenue enhancement rate
In line with international tendency and to be globally competitory, the corporate revenue enhancement rate was revised downwards to a individual rate of 15 % . Before 2006, revenue enhancement inducement companies were taxed at the rate of 15 % and other companies at 25 % .
3.2.3 Particular levies on profitable houses
A Temporary Solidarity Levy at the rate of 0.85 % was charged on profitable hotels, hotel direction companies and tour companies and circuit operators. Lone companies with net income before revenue enhancement to turnover ratio of 5 % and above based on the available audited histories were required to lend to the levy. This levy was an allowable tax write-off for income revenue enhancement intents ( Finance Act 2006 ) .
Grosss from the Solidarity Levy introduced in 2006-07 grew by 30 % to make Rs 202 million ( in 2007-2008 ) . The solid growing is attributable to the exceeding addition in tourer reachings in the 2nd half of the calendar twelvemonth. However, an sum of merely Rs 101 m was collected in regard of the first six months of fiscal twelvemonth 2008-09.This was chiefly due to the suspension of the impermanent levy on history of the impact of economic recession on touristry sector.
In add-on to income revenue enhancement, underscoring the importance of solidarity, Government introduced a series of new levies.These were imposed on flush sectors intended to call up resources with consequence from Ist July 2009 to battle the effects of the planetary economic crisis. The new levies applicable to merely profitable companies comprise:
Particular Levy on Bankss
Following proclamation made in the budget address 2007/2008, Government introduced, as a “ bridging step ” in order to avoid a sudden bead in Government gross, a particular levy on Bankss at the rate of 0.5 % on their operating income and 1.7 % on their book net income. Merely 30 per cent of the levy was collectible in the first twelvemonth of application. This levy is applicable to merely profitable Bankss. In 2009 the rate was increased to 1 % of turnover plus 3.4 % of net incomes over the class of the following two fiscal old ages. In 2011, the doubling of the particular levy was maintained for the following two old ages. Furthermore, an extra one-off charge from Segment A banking activities has been added to supply seed capital to the Equity Fund ltd.
During the twelvemonth 2007-08, 12 Bankss paid the particular levy, which raised Rs 67 million. In 2008-09 the sum stood at Rs 333 million which was paid by 16 Bankss.
Solidarity levy on telephone service suppliers
Suppliers of fixed and nomadic telephone services were apt to pay a solidarity levy for the following two old ages. The applicable rate was as follows:
For the old ages of appraisal get downing on July 1 2009 and January 1 2010: 5 % on the book net income and 1.5 % on turnover.
Further alterations in solidarity levy
The undermentioned proclamation was made in the budget address 2012:
Abolition of solidarity revenue enhancement on dividends and involvement with consequence from 1st January 2012.
Extension of solidarity levy on telecommunication companies up to 2013
Imposition of Solidarity levy on direction companies in the Global Business Sector at the rate of 10 % of indictable income and applicable for two old ages stoping in 2013
Corporate Social Responsibility ( CSR )
Firms are required either to pass 2 % of their net incomes on authorities approved CSR Schemes or to reassign these financess straight to the authorities to be used in the battle against poorness. As announced in the budget address 2012, CSR will now be computed as 2 % of indictable income alternatively of 2 % of book net incomes. Corporate societal duty does non use to planetary concern companies. ( Budget Speech, 2009 and 2012 and Mauritius Domestic Corporate Taxation,2011 )
3.3 Change in method of aggregation of CIT gross
A new payment system known as Advance Payment System ( ADS ) for companies was introduced on 2007. This scheme requires them to consequence quarterly probationary revenue enhancement payment on the footing of the indictable income of the predating revenue enhancement return. Final rapprochement of revenue enhancement liability is done when the one-year revenue enhancement return for that twelvemonth is submitted. This system which is considered to be in line with best international pattern is thought to convey the revenue enhancement payments flow of a company closer to its net income flow.
In add-on, all companies with an one-year turnover above Rs 30 million or more than 50 employees were required with consequence from 1 July 2007 to subject their income revenue enhancement returns electronically and do e-payment of Tax. The figure of E-Filers companies rose from 1182 in 2007-08 to 12,853 in 2010.
In an attempt to acquire more concerns to pay revenue enhancements, the authorities introduced two particular strategies: Voluntary Disclosure Incentive Scheme ( VDIS ) and a Tax Arrears Payment Incentive Scheme ( TAPIS ) . VDIS allowed companies to come forward and do voluntary revelation of undeclared net incomes with merely 25 per cent of the punishment and involvement that would hold been imposed under normal commissariats. The 2nd 1 aimed at wipe uping up outstanding revenue enhancement arrears and boodles under judicial proceeding. . ( Budget Speech,2007/2008 )
3.3.1 Global Business Sector
Mauritius as a low revenue enhancement legal power, edifice on its 36 Double Taxation Avoidance Treaties ( DTAs ) , benefits to many types of concerns when it comes to revenue enhancement planning through the Mauritius offshore companies. There are two types of Global Business Companies ( GBCs ) based on the class of license – GBC 1 and GBC 2..These companies every bit good as trusts can be set up as portion of group of companies merchandising globally and same can be used to purchase and sell goods between the group ‘s companies by set uping the right scheme. Professional Service Companies such as attorneies, advisers and Computer coders can bask considerable revenue enhancement nest eggs by covering with clients outside their state of abode and deducing income depression of revenue enhancement in Mauritius.
A GBC1 is apt to corporate revenue enhancement at 15 % but may claim a foreign revenue enhancement recognition in regard of the existent foreign revenue enhancement suffered or 80 % presumed foreign revenue enhancement recognition, whichever is higher. As such, a GBC1 has a maximal effectual revenue enhancement rate of 3 % . A GBC2 is exempt from revenue enhancement in Mauritius and can non profit from the DTAs. ( Beginning: ( Mauritius: A usher to Global Business, Deloitte, November, 2010 )
3.4 Business Facilitation Policy
The Finance Act 2006 and the Business Facilitation Act 2006 set the legal model, along with the Board of Investment as facilitator, to back up Government ‘s committedness to do Mauritius a globally competitory state capable of making greater highs of success without trade penchants and for implementing one of the most comprehensive sets of reforms the state has witnessed in many old ages. Investing inducements are applied uniformly to both domestic and foreign investors. Mauritius offers a low legal power as set out below:
a level corporate and income revenue enhancement rate of 15 % ,
up to 100 % foreign ownership,
freedom from imposts responsibility on equipment,
free repatriation of net incomes, dividends and capital,
no minimal foreign capital required,
50 % one-year allowance on worsening balance for the purchase of electronic and computing machine equipment ; and
An extended revenue enhancement pact web with several states. ( As at November 2010, Mauritius had 36 Double Taxation Tax Treaties ( DTAs ) in force and is presently negociating others )
( Beginning: 2011 Investment Climate Statement- Mauritius, Bureau of Economic, Energy and Business Affairs, March 2011 )
3.4.1 Effectss of Tax Reforms on Business Facilitation
Mauritius is among the most competitory and successful economic systems in Africa and actively seeks foreign investing. The World Bank ‘s 2010 Doing Business study ranks Mauritius 17th among the 183 economic systems covered by the study and first in Africa for the 2nd twelvemonth in a row in footings of overall easiness of making concern. In three old ages Mauritius has moved from the 49th ( 2006 ) to the seventeenth topographic point ( 2009 ) . Mauritius is praised in the study for its continued attempts in the past twelvemonth to better the concern clime with the acceptance of a new insolvency jurisprudence, the constitution of a specialised commercial division within the tribunals, the moderation of belongings transportations, and the expediting of trade procedures. The authorities ‘s aim is for Mauritius to rank among the top 10 most investing and concern friendly locations in the universe.
The World Economic Forum ‘s 2009-2010 Global Competitiveness Report places Mauritius second in Africa ( after South Africa ) and 57th in the universe in footings of fight. The study lauded Mauritius as “ a state characterized by strong and crystalline public establishments, with clear belongings rights, strong judicial independency, and a security that is good by regional criterions. ” ( Bureau of Economic, Energy and Business Affairs, March 2011
This chapter has provided an overview of the revenue enhancement government in Mauritius. The following chapter explains the methodological analysis to carry on the survey