A new era of development: What financial operators think of the budget

It is an established practice for operators of the financial services industry to publish their Budget Brief following the presentation of the namesake exercise. Overall, they have been positive in their comments about the measures announced by Pravind Jugnauth during his speech. For some of them he has been able to address most issues facing the country.

“Firing on all cylinders”

For firm Grant Thornton, the new Minister of Finance took the bull by the horn and addressed most of the issues that are relevant to the business community and people of Mauritius. Gone are the dreams of mega projects and unachievable objectives. In come realistic and realisable projects for the business community, the public at large and long overdue reform of the public sector, whilst at all times keeping an eye on the budget deficit and public debt.

Bold moves for a niche market

The business community should rejoice in the various measures announced to remove red tape and make Mauritius an indeed easy place to do business. The India renegotiated treaty, for so long the “bête noire” of the business community gets a mere brush of a stroke and new measures are introduced to enhanced the financial services sector with bold moves in relation to investment banking, ultra high net worth individuals and the non-bank financial services sector.

Inclusiveness

The Minister of Finance addressed a myriad of social issues affecting the lower income end of the population with particular emphasis on eradicating absolute poverty, improving the conditions of life of families, with emphasis on education and empowerment, and addressing in no small way the living conditions of that sector of the population. The low to middle income earners are also given ample opportunity to become proud homeowners.

“A greater sense of urgency”

Deloitte has on its part issued a positive communiqué saying that the 2016/2017 Budget contains various measures to boost the economy in the midst of major challenges facing Mauritius. The Minister has widely consulted with the key stakeholders and the budget proposal reflects some of their recommendations. There is clearly a greater sense of urgency to address the challenges as well as commitment to steer Mauritius back to a high performance economy. 

“We welcome the new direction to open the economy for international investors, improvement in efficiency in public sector, minimal changes to tax measures as well as incentives for increased investment and programmes to alleviate poverty. Whether these measures will be sufficient to lift the country to the “new normal” growth rate from 3 percent to 3.5 percent will depend upon the ability of the government to implement the various initiatives as well as the private sector playing a key role in the new era of development,” read the communiqué.

“Rebooting the economy boldly”

For the company BDO, emphasis has been placed on the competitive advantage of Mauritius: A low and simple fiscal regime with reintroduction of the concept of tax holiday and improved investment tax credits, even companies operating in the financial services sector are benefiting from tax holidays. It has however hit hard with taxes on alcohol, sugar and tobacco. These deterrent taxes are not new but the extent of the hammering has been unprecedented.

“The redefining of industrial strategy is welcome with the opening of gold business, pioneering the low sulphur bunker fuel in Indian Ocean and the return of Leasing Equipment Modernisation Scheme ensure diversification and allows for modernisation. The bold and welcoming measure is the Air Freight Rebate of 40% which brings Mauritius closer to its markets. This will enhance competitiveness of our exports and will give an impetus to our textiles and apparel sector,” said BDO’s brief.

The financial services sector is being reshaped post DTA-India with new commodity exchange for gold, diamond and precious metals. The sector benefits already from low tax regime will now have certain licensees of FSC benefitting from tax holidays. This is very bold indeed. However, in terms of attracting and opening up to foreigners it is open to debate whether the minimum investment of USD25m to be eligible for tax holiday is not too high to have a meaningful impact.

“Enlarging the space for wealth”

For KPMG, a number of measures announced indicate that a key priority of this Budget is to enlarge the space for expansion of economic activity and value creation. In the global business and financial services sector, allowing GBC2 license holders to invest on the stock exchange, and tax holidays to licensed global headquarters as well as global business operators in the Treasury, Asset Management, Legal, Investment Banking and Family Office space are all indications of a country strategy to increase substance and the product proposition of Mauritius as an International Finance Centre.

“For the real economy’s manufacturing and construction sectors, key incentive schemes include an 8-year tax holiday for industrial fishing operators based in Mauritius, permit facilitation for building and land use through e-licensing and introduction of the Sand Bag licensing principle; extended tax credits on new investments by manufacturing companies and a 40% subsidy towards Airfreight for textiles for a period of three years,” read their document entitled ‘Realigning expectations’.

For PWC’s senior partner André Bonieux, “a reform that was expected, but unfortunately not discussed, was around targeted social benefits – health, education, pensions, transport, food subsidies. These benefits initially targeted for the needy are now for everyone’s benefit and probably costing a fortune to the national treasury.”

Another lost opportunity, he says, seems to be in recurring expenditure figures with an increase of 13.8% over 2015/16 whilst revenues from taxes are expected to grow by 9.3%. So whilst tax buoyancy appears healthy, Government is spending much more than before and this is a year where inflation is estimated at a mere 2%. The funding gap will be huge when the grant from India will have been used up.