Tax Perspective

The pandemic has pushed the most vulnerable in a more precarious state. True, it is that in such challenging times, one obvious option open to the Minister is a progressive tax system. This will ensure a redistribution of the wealth in the country and lead to more fairness in our taxation system.

However, an increase of 400% in the solidarity tax from 5% to 25%, comes as a blow to the high-income earners. Dividends from resident companies are tax exempt in many countries including Mauritius to avoid double taxation. Solidarity tax may be viewed as simply taxing dividends through the back door!

The Budget 2020 has also brought in a levy on companies with a gross income exceeding Rs500 million; here again, targeting big companies and multinational enterprises. However, companies with high gross income may not necessarily show a profitable position. Isn’t the concept of solidarity levy meant to apply only to profitable companies?  The Minister in his wisdom has exempted companies in the Tourism and Global Business sectors. However, we should not overlook that some other sectors are also enduring or are yet to endure the negative impact of the pandemic. 

Digital and electronic services provided through the internet by non-residents for consumption in Mauritius will be subject to VAT. This measure is aligned with the VAT principles under the OECD VAT/GST Guidelines. Further, this will not only ensure a level playing field between non-resident suppliers and local suppliers, but also lead to an increase in VAT collection without a corresponding increase in VAT rate.  

Also, payment of VAT will now be made as from the date of the receipt instead of date of invoice.  This will apply only to construction contracts with the Government and represents a good starting point to ease cash flow for businesses. 

With COVID-19, most economies are on the verge of an unprecedented recession, and unless the Mauritian Government provides continuous support, many businesses may not be able to survive. While we have seen some targeted measures to fiscally help some industries, the introduction of the new levies could have negative impact. 

Unlike many other countries, we have not seen enough measures to ease the cash flow of businesses except for Government construction contracts, which raises the question of whether this is not a missed opportunity to financially help the larger business community.