The 9/11 showed the world that calamities can occur in every part of the world, the 2008 financial crisis showed us that we can go through the same fate like past eras such as the Great Economic depression and the COVID-19 pandemic reminds us of the spectres of the 1918 (‘Spanish’) flu.
The new coronavirus has affected many countries and territories and the death toll is heavy worldwide. The progression of the COVID-19 is increasing at an alarming pace and it is very probable that the economic impact will cause much turbulence in the global economy. Besides investing in public-health responses, the government must also step up its game in order to mitigate the virus’s impact on the economy, employment, and living standards.
Tax Measures in the Mauritian Context
So far, the virus has hit dozens of countries and has reached pandemic levels. With the ongoing novel coronavirus outbreak threatening to stall economic growth, many governments are rolling out budgets and tax measures to soften the hit to the economy. Below we enumerate a few tax measures that could be considered to either curb the proliferation of the virus and/or alleviate the hit to the economy and the Mauritian population generally.
Corporate Income Tax (CIT)
and VAT incentives
It is beyond the shadow of a doubt that many sectors of the economy will be affected, such as catering, transportation, accommodation and tourism sectors. For the enterprises that are seriously affected, CIT losses incurred in 2020 can be provided for an extended carryforward period. The actual period of tax loss carried forward is currently 5 years.
Currently we have a 15% and 0% VAT rate in our Mauritian VAT system. Whilst the VAT Act exempts certain medical and pharmaceutical products, it is rather silent on how to treat the sale of masks and items related to the prevention of the novel Coronavirus. China, for example, has exempted a wide range of consumer services from VAT on a nationwide scale. The masks and hygiene products could be treated as zero-rated items (0% VAT Rate) so that they are more affordable to the general population.
VAT and Corporate Tax incentives could also be introduced for companies that are engaged in producing key supplies related to COVID-19 protection and containment (e.g. masks, protective clothing, and sanitary hand wash )
Donations are normally not tax-deductible when computing the Income Tax payable by individuals and companies. A special provision could be introduced to enable any individual or corporate that donates cash or material to respond to coronavirus outbreak through non-profit social organizations or to the government, to then fully deduct this donation on their individual or corporate income tax. This will likely encourage more donations and engage a higher proportion of the population in fighting against the proliferation of the virus.
Increase Tax Deadlines
The spread of the virus has already reached countries such as India, Indonesia and Singapore and such countries have already enabled some flexibility to taxpayers in terms of their tax obligations. Policymakers could also consider moving the tax deadlines for Individuals and Corporates (mainly Small and
Medium Enterprises). Increased awareness and support should be provided to the population in order to file their returns (corporate, VAT, TDS) electronically so as to minimize contact in crowded places. This flexibility will definitely help in allowing individuals and Corporates to restrict movement and encourage social distancing.
Additionally, the Mauritius Revenue Authority could roll out simple explanatory videos to the taxpayers on the process of how to fulfill their tax obligations online and at the same time inform them of any moratorium provided.
Work from home tax credits
With the recently declared Coronavirus cases in Mauritius, the Prime Minister, Pravind Jugnauth, declared that the Country is in a state of emergency. Working from home will now be uncharted territory for a large portion of the Mauritian population.
Employees having to make use of home facilities such as electricity, internet bills and other computer consumables may easily deduct those from their tax returns. As an individual, you only need to make sure that all expenses you are making in the ‘Work from home’ space are recorded in a logical way and logged for future reference. E.g. a person working from home 5 days/week may apportion and deduct his electricity bill on the total number of hours worked at home.
As for employers, tax credits on remuneration paid for workers that are benefiting from Sick leaves / paid leave benefits may be introduced. This will alleviate the Employer’s tax liability directly.
Presumptive Tax System for Small
and Medium Enterprises (SMEs)
One of the Measures introduced in the Finance Act 2019 was the presumptive tax system for SMEs. This system allows eligible small enterprises to pay tax at the rate of 1% of their gross income. However, the SME (individual or corporate) is not entitled to claim any deduction, Income Exemption Threshold, relief or allowance. The system is available to a person who, amongst other requirements, has a gross income of no more than MUR 10M in an income year. Currently the presumptive tax system takes effect from July 2020.
With the economic slump caused by the COVID-19 since January 2020, the government could consider providing applicability of the presumptive tax system retrospectively so that all SMEs benefit from the reduced 1% tax rate.
The COVID-19 has finally hit the Island and we are now facing a sanitary crisis. It is high time that policymakers and analysts probe into new ways of utilizing the tax system to assist low-income families and the population
generally. New tax measures could be introduced to help cushion the impending blow to the global economy and its ripple effects onto the Mauritian economy. The global economic repercussions will be surely felt if we do not act with the utmost urgency. It is time to act as one people, as one nation and show solidarity for the neediest: be it mentally or economically!
MARCH 24, 2020
Disclaimer: The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author’s employer, organization, committee or other group or individual.
Nissar Chamroo holds a BSc in International Business Management and is currently pursuing professional studies in Advanced Diploma in International Taxation. He has advised a number of Multinational clients on complex transactions involving direct and indirect tax, accounting and regulatory issues. He has experience in the Mauritian Global business sector including global business structuring and transfer pricing documentation.