Mauritius govt treads populist path as finance minister declares no tax budget
Mauritius Finance Minister Vishnu Lutchmeenaraidoo make headlines by declaring a no tax budget, while reiterating the government’s stand on equitable sharing of economic gains, as well as its focus on transparency and good governance. (Image: AfricaMoney)
The newly elected Mauritius government under L’alliance Lepep that came to power mid-December, saw finance minister Vishnu Lutchmeenaraidoo make headlines by declaring a no tax budget, after 25 years of absence from the political limelight.
A budget that was expected to answer all the challenges the country is facing from a socio-economic perspective, Budget 2015-16 placed strong emphasis on equitable distribution of gains, amid putting Mauritius on track for a second economic miracle.
The government laid emphasis on reducing the disparity between the poor and the rich, as also on ensuring transparency and good governance, while continuing to stimulate growth. The Budget, looking at a horizon of 18 months, will have to answer relevant challenges persisting over the last decade such as combating poverty, unemployment, corruption and financial fraud; creating new economic sectors; supporting Small and Medium enterprises; and establishment of social peace and justice.
This Budget was based on four specific objectives: First, steer the economy towards a path of high investment, and high employment; second, secure long-term sustainable development for all; third, achieve greater equity and social justice for all; and fourth, promote transparency and good governance in the management of public affairs.
Under this segment, the Minister of Finance took into consideration the traditional sectors experiencing low growth, low investment, and therefore low employment creation — even retrenchments. The Minister announced, “We need to think outside the box, if we want to create jobs at a rapid pace.” Therefore, the first action is to unlock the employment potential of 13 mega projects that will be spread across the country.
These ‘Smart City’ projects include the Omnicane airport city in the South-east, St Félix Village projects in the South, The Médine Integrated Park in the West, Roches Noires in the Northeast, the Azuri Phase 2 project in the north, the Terra project in the north, the Highlands City in the centre, the Richeterre Project in the vicinity of Port Louis and finally, five ‘Technopoles’ at Highlands, Rose Belle, Flacq, Rivière du Rempart and Bambous.
SMEs -‘ Île Maurice Nation D’entrepreneurs’:
One of major priorities of this government is to promote the entrepreneurship spirit and leverage SMEs to grow the economy. Therefore, the government is coming up with a coherent strategy and scheme that provides meaningful support at all levels to young entrepreneurs — from the conceptualisation of a project to its realisation. It will cover support on financing, choice of production methods and technology, and marketing. To achieve this, a comprehensive “One Stop Shop” approach to the SME sector has been proposed, encompassing the following:
Launching the Small and Medium Enterprises Bank (SME Bank) to provide seed capital to entrepreneurs without any need for personal guarantee; setting up of One-Stop-Shop to help SMEs with information, permits and licenses required to start and grow their businesses; greater access to working capital from the State Bank of Mauritius; fast tracking projects under the aegis of the SMEDA; exempting SMEs registered under the Scheme from the payment of corporate tax for a period of 8 years; creating 7 more SME Parks in addition to the 3 recent ones at Roche Bois, La Tour Koenig and Bambous; raising VAT registration threshold from Rs 4 million to Rs 6 million and raising turnover threshold for submission of quarterly return under the Advance Payment System from Rs 4 million to Rs 10 million; and finally, the annual fee payable to the Registrar of Companies by a small private company with turnover not exceeding Rs 10 million is being reduced from Rs 2,500 to Rs 500.
Transforming the Port-Louis Harbour to a Regional Hub:
This project will connect Port-Louis to almost all the ports in the region and many more beyond the region. It will enable thousands of vessels to drop anchor in the harbour while supplying a wider variety of port and maritime services. The port is expected to become a key contributor to the development of the ocean economy, creating vast opportunities for SMEs, and thousands of new jobs for Mauritians.
Training and human resource development:
The government will use the three campuses, presently under construction at Réduit, Montagne Blanche and Pamplemousses, to meet shortage of specialised skills, especially at the mid management level. Réduit to house a Polytechnic which will offer courses in middle Management, ICT and other ICT-related fields. The Montagne Blanche campus will be reserved for tourism-related courses. Finally, the Pamplemousses campus will offer courses mainly in health care.
Business facilitation and investment climate:
A fast track committee to expedite the approval process and facilitate the implementation of major investment projects; abolishing a total of 70 permits and licenses that have become obsolete; giving operators the possibility of renewing their licenses for a period of up to 3 years; and finally, giving operators in the tourism sector the possibility of an omnibus permit for their various activities.
The government is also carrying out a study of the labour market and the wage policy to bring it in line with the need to boost investment, such that every worker and employee gets his fair due in the development process.
Under this segment, the Minister has taken into consideration various sectors in the island economy that will boost employment and investment, namely Tourism, Fishing, Manufacturing, Financial Sector and ICT. The main measures under the different sectors are:
Under the fisheries sector, Government is creating vast new opportunities for fishermen to engage more and more in aquaculture through partnership with large operators.
Under manufacturing, Rs 442 million is being allocated to the Ministry of Industry, Commerce and Consumer Protection to support the manufacturing sector as it gears up to meet the challenges of stiffer global competition.
Under tourism, the Budget raised allocation for the Mauritius Tourism Promotion Authority (MTPA) from Rs 390 million to Rs 560 million and also provided for a tourism sites embellishment programme, while raising the standards of operators in the industry.
In the ICT sector, Mauritius will have a third international gateway through the installation of a new submarine cable to connect both Mauritius and Rodrigues to the rest of world. Moreover, the whole island will have full broadband fibre connectivity within the next 3 years. The number of free WIFI hotspots will be increased from 15 to 350 and the 10 cents levy on SMS will be abolished.
As regards the financial services sector, the government has proposed the introduction of a special Financial Sector Incentive Scheme to attract international Asset and Fund Managers to relocate their front-office operations in Mauritius, reactivating the Financial Services Promotion Agency for more effective promotion campaigns, and amendment in Income Tax Act to exempt nonresident corporate bond holders from withholding tax.
Finally, the finance minister noted that the clear statement made by Indian Prime Minister Narendra Modi during his last visit in Mauritius has reassured all stakeholders in the global business sector that India will do nothing to harm this sector and will work towards bringing the Double Taxation Avoidance Agreement to a fruitful conclusion.
Environment, energy, water and waste management:
As for environment, the National Environment Commission chaired by the Prime Minister will be revived to create better synergies among the various stakeholders to address important environment concerns and issues. The government has also set up the National Disaster Management Centre under the aegis of the Ministry of Environment to ensure quick response to any major unforeseen event. Total resources of Rs 1.3 billion have been committed in this Budget for priority drain works across the island.Also, Rs 3.5 bn has been committed to the water sector.
In more measures, the government has banned the use of plastic bags in Mauritius effective on 1st January 2016, a Mauritius Renewable Energy Agency is being set up to promote the development of renewable energies,and household investments in solar energy will be deductible from their chargeable income.
Modernising Land Transport:
The government is investing in a fly-over at Decaen street to reduce traffic congestion in and out of Port-Louis; accelerating the design of the fly-over over the Phoenix and Jumbo roundabouts; and building a new bridge to link Coromandel with the motor way. Finally, 100 semi-low floor buses will be acquired by the National Transport Corporation.
Trade and Africa strategy:
The government is redefining the role of the Mauritius Africa Fund to concentrate on the development of Special Economic Zones (SEZ) in various African countries, of which three – Madagascar, Ghana and Senegal – have already expressed intent to work with Mauritius.
The Board of Investment will be posting 8 Trade and Investment Managers in Mauritian embassies at strategic cities including Beijing, Geneva, Pretoria, London, Moscow, Mumbai, New York, and Paris.
To improve the social welfare and peace in Mauritius, the budget has placed emphasis on health care, education, Marshall Plan against Poverty, law and order, ‘nation zougadère’, child protection and family welfare, youth, sports, arts and culture.
Health care segment will be improved in terms of quality and delivery with the introduction of latest medical technologies with Rs 9.7 bn dedicated to this area with the setting up a New Cancer Centre, e-health project and the construction of a new state-of the-art ENT hospital together with recruitment of 100 additional full time doctors and 1400 medical staffs to better serve patients.
The education segment has been provided with Rs 14.7 bn to improve quality of teaching, implement nine years schooling, revamp of vocational training towards building the future knowledge hub of Mauritius and much emphasis has been laid at tertiary level with the upcoming Higher Education Bill.
To continue the government’s mandate of sharing gains, which started right after elections, this budget has made a provision of Rs 27.5 billion for social security expenditure for the period January 2015 to June 2016. People donating their pension towards the Marshall Plan Against Poverty managed by the CSR committee, will be exempted from payment of income tax on this amount.
To help low middle income groups to have their own roof over their heads, bold measures are being adopted such as construction of 1,000 low cost housing units for families whose monthly income is below Rs 10,000, together with an increase in size of these housing units to 50 square meters. Furthermore, low-income housing will see the construction of 700 housing units in the next two years for vulnerable families under the National Empowerment Foundation and increasing the grant for casting of roof slabs from Rs 65,000 to Rs 75,000 for families earning a monthly income of up to Rs 10,000.
Additionally the threshold for exemption from payment of registration duty for a first time buyer of land is being increased from Rs 1 million to Rs 1.5 million.
The Marshall Plan Against Poverty will extend support to the very poor families living in identified ‘cités’ and other ‘poches de pauvreté’ together with the collaboration of the private sector and the second leg will revisit the structure of the Corporate Social Responsibility (CSR) system to make it more effective by letting companies decide on how best to fulfil their social responsibility in a most effective manner. Companies, hereon, will be free to allocate the 2% of CSR according to their own set of priorities.
Law and Order
To redress the Law and Order situation in Mauritius, the budget has allocated Rs 7.9 billion for the police force. The force will also recruit 600 police officers who will be properly trained in a full fledge academy to ensure more professional police officers.
To improve police investigations, forensic accountants, analysts and mobile phones experts will be recruited, together with the setup of an independent Police Complaints Commission. To combat crime, an effective judiciary system will be put in place with an allocated amount of Rs 600 million for better court infrastructure.
Regulations for the gaming industry included a total ban on advertising and issue of license for a period of 5 years (except for new casinos) making it difficult for new entrants. Existing players will also be impacted by an increase in license and fees together with limitation on range of games given a ban on scratch card games and relocation of all gaming house outside city centres.
The new budget also seeks to help consumers to get out the debt trap by reducing interest on hire purchase from 19% to 15% and penalty fees from 5% to 2%. To eliminate consumers confusion on prices, all suppliers of goods and services must display prices inclusive of VAT.
Excessive banking commission fees will be regulated by the Office of Ombudsperson, which will deal with complaints received and recommend appropriate remedial action. The Bank of Mauritius is planning to implement the report on abuses of commercial banks together with the setting up of a committee to examine the Report of the Commission of Enquiry on Sale by Levy for expediting the implementation of its recommendations.
Child Protection, Family welfare, and Development Gender Equality
The budget recommended doubling provision to support children and women in distress, increasing the number of technical staff at the Child Development Unit by over 50% for the protection of children and families, recruiting six child psychologists and increasing capital grants to NGO by 50% to promote the well-being of the population.
To promote sports in Mauritius, Rs 26 million will be dedicated to the project of professional football by upgrading the ‘Centre Technique Francois Blaquart’ at Réduit and Rs 60 million will be given as contribution for the Indian Ocean Islands Games to encourage Mauritian athletes.
Culture in Mauritius will be revived with Public Private Partnership (PPP) initiatives to renovate theatres and the newly set up SME bank will also be equipped with a special desk to assist local artists.
Transparency and good governance
Another area of tremendous importance for this new government is ensuring transparency, and to abide by the government’s promise, the budget has announced changes in the areas of meritocracy, procurement, and management of state lands.
Accordingly, there will be more transparency on allocation of contracts. In terms of state land allocation, a Digital State Land Register will be compiled and made public. Mauritius will follow Singapore’s approach in this area, together with publishing in the government gazette when state lands are leased.
For good governance, the chairperson in the public sector will not be involved in day to day activities and CEOs will be recruited under a more transparent process. In terms of improving efficiency, a civil service college will be put in place together with boosting the use of technology in the civil service.
The finance minister laid great emphasis on the creation of a Legacy Sovereign Fund for future generations, to which 1% of total government revenue will dedicated, and all proceedings from sales of government properties will also be credited to the fund.
To attract the Mauritian diaspora overseas, incentive packages such as tax exemption over 10 years, and waiver of custom duties on their personal belongings, will be put in place to encourage them to come back to Mauritius and apply the knowledge and expertise learnt in the global context to foster local economic growth. All professionals with over 10 years of work experience overseas are eligible for this scheme.
Macroeconomic policies and taxation
The Bank of Mauritius will have full independence in formulating and implementing both exchange rate and monetary policies and link between the BOM and the Ministry of Finance will be strengthened.
Expected provision for recurrent expenditure will be around Rs 93.6 billion, capital expenditure at Rs 12.6 billion and total revenue at around Rs 90.8 billion — of which tax receipts will amount to Rs 77.8 billion. The budget deficit for 2015-16 will thus be 3.5% of GDP while public sector debt will be 54.2% of GDP (or 58.6% by IMF standards).
On the taxation front, the deposit required from taxpayers to lodge complaint against a tax assessment by MRA will be reduced to 10%, together with amendments to tax administration and increasing income exemption thresholds by Rs 10,000, eliminating the 5 years restriction; and abolishing the cap of Rs 120,000. Moreover, a first-time home-owner will be able to claim relief for the full amount of interest paid on mortgage loan and for the full duration of that loan.
The finance minister ended on the note that it is a no tax budget and closed his speech by dedicating this budget to the vision of Prime Minister Sir Anerood Jugnauth.