Budget Analysis: Accounting and Law firms welcome financial measures

Are the measures announced by the Prime Minister and Minister of Finance in the Budget 2017-2018 on international tax, tax holidays and incentives, the economic growth rate, the export sector, among others achievable? Accounting and Law firms give us their insight on the measures. 

Following budget 2017-2018 speech by Prime Minister and Minister of Finance and Economic Development Pravind Kumar Jugnauth last Thursday, Accounting Firms and Law Firms in Mauritius have made an analysis of the measures announced. Their views have been categorised sector wise below.

Export Sector

“Exports increased consistently from MUR69.6 billion in 2010 to a peak of MUR94.8 billion in 2014, thereafter falling to MUR 93.3 billion in 2015 and MUR83.8 billion in 2016,” indicates Deloitte in its Analysis. Regarding the measures and incentives announced in support of the export industry, including tax reduction from 15 percent to 3 percent on profits derived from exportation of goods, Deloitte trusts that these “should contribute to reverse the recent decline in export sector earnings in an attempt to improve the widening trade deficit.” However, as it highlights, “this fiscal incentive should also be accompanied by measures to raise productivity. This is also a step towards harmonisation of taxation for domestic exporters and global business companies (GBC1).”

Deloitte trusts that “diligent implementation of the enunciated measures aiming to boost investment and exports, enhance productivity and efficiency as well as encourage smart technology and practices would be indispensable for Mauritius to graduate to a higher growth trajectory.” The success of these measures, as it analyses, “would also require the active participation of the private sector.”

Tax

According to ABAX, “as expected, the budget did not feature any fundamental changes in our tax system.”  An international provider of advisory, corporate and business services, ABAX underlines that “the government continues to see tax holidays and incentives as a measure to boost investment, growth and job creation.” On the other hand, Deloitte explains that success of incentives namely in terms of accelerated capital allowances and double deduction for qualifying research and development expenditure, 8-year income tax holiday for innovation-driven companies of pharmaceutical and high tech product manufacturers, “will depend upon other factors including availability of skilled resources.” It analyses that “the negative income tax for low-income employees that has been accompanied by a new solidarity levy of 5 percent for high-income earners is a step towards mitigating income inequality.”

Accounting firm KPMG states that both social and business needs were addressed in the budget. However, as it highlights, “the impression is that the former has taken precedence in this budget.” It highlights that the series of social measures and incentives announced will lead to higher disposable income to the needy and improve their access to basic amenities.” Regarding the measure of the a negative income tax in support of those earning less than Rs10,000 a month, KPMG trusts that this “will benefit a massive 150,000 employees.” 

Economic Growth

ABAX indicates that the GDP growth hovers around the 4% mark – 3.9% in the current financial year and an expected 4.1% for 2017-2018. “It is a subdued progression, but decent enough given the uncertainties the world economy continues to face.” It further analyses that the government “continues to pursue its Africa Strategy through a series of economic partnerships.” 

KPMG explains that “the government has projected a small budget deficit of 3.2%, down from an actual figure of 3.5% for the current year”, and analyses that it “has resisted the pressure to depart from a uniform tax system of 15%.” It also notices changes such as an additional levy of 5% on individuals earning in excess of MUR3.5 Million annually, and a reduced corporate tax rate of 3% on exportation of goods from the current rate of 15%.” 

On the other hand, Deloitte trusts that the GDP growth needs urgent attention. It analyses that the measures to monitor implementation, from planning to completion of major projects, “should be able to result in higher public investment.” It also trusts that the budget deficit estimated at 3.5% of GDP is acceptable. It explains that regarding the announced aim of bringing further down (below 60%), the public sector debt, estimated at 66.1 % of GDP at June 2017 and expected at 63% by June 2018, “is conditional upon a sustained acceleration in economic growth in coming years. Should growth not pick up and significant contingent debt items materialise, the risk of public sector debt shooting up further would be real and that would consequently trigger considerable challenges for policymakers.” 

Financial services sector

KPMG states that for the financial services sector, the “competitive business tax regime is being gradually eroded in the wake of a rapidly changing international tax landscape driven largely by OECD and EU.” It underlines that “a wider tax reform is necessary, but this will only be dealt with in a blueprint for the sector in due course.” 

As for ABAX, it states that it is reassured by the commitment of the government to ensure that Mauritius remains an attractive and competitive jurisdiction for doing business, whilst complying with international best practices and standards. ABAX says it welcomes the announcement regarding a blueprint for the financial services sector, as well as reforms regarding the tax regime for Global Business companies. “New measures have been introduced to make it easier to do business in Mauritius, and additional incentives to attract investors have been announced.” However, ABAX believes that “there is more that needs to be done to encourage foreign investors to do business in Mauritius and establish presence on the island. Creating an environment that attracts top talent to work and live in Mauritius being one of them, for instance.” 

It also believes that the success of the financial services sector, and Global Business in particular, will ultimately be measured by two things: “Firstly, its ability to adapt to the changing international tax, compliance and regulatory landscape; and secondly, the effectiveness of its integration with the local economy. For now, we look forward to the blueprint and the proposed tax reform.” ABAX believes that “it is critical that these are published sooner rather than later to minimise any uncertainty for businesses. Grandfathering of existing structures will be welcome in this context.” 

The Temple Court Law Firm states that “the contribution of the financial services sector to the gross domestic product is significant for the country, and is one of the most important pillars for the Mauritian economy.” At the same time, it states, the landscape of the financial services sector is changing due to international reforms in the taxation, including from the OECD. The firm trusts that key measures announced in order to safeguard the reputation of Mauritius as an International Financial Centre and also to open the economy further for prospective investors, “purport to enhance the financial services landscape in Mauritius, by striving to build resilience against global uncertainties and represent a gateway to opportunities on an international level.” It also adds that the measures pertaining to the Financial Services “provide a road map towards greater stringency.  It is clear that the financial services sector lends itself towards a people strategy namely in employment creation and growth.”