SME Development Scheme: The race is on

Turning Mauritius into a nation of entrepreneurs. With the launch of the ‘SME Development Scheme’, entrepreneurs can now embark on a new adventure lined with benefits. While the next Budget might probably unveil a sequel to the ‘Business Facilitation Act’, News on Sunday analyses the new Scheme, its advantages and shortcomings. The new SME Development Scheme aims to be a revolutionary plan to give new impetus to Small and Medium Enterprises. Announced for some time, this plan provides funding for eligible projects at a highly preferential rate of 3.4% and no personal guarantee is required. However, the main highlight of this plan is the tax exemption offered to entrepreneurs: No Corporate Tax to pay for the first eight years of operation and a VAT exemption on all production equipment. According to the Minister of Finance, the SME Development Scheme is a very attractive incentive plan to encourage Mauritians, especially young people, to engage in business and to participate in the emergence of a new entrepreneurial and diversified economy. The government wants Small and Medium Enterprises become the main engine of growth of the economy of Mauritius in five years time. It plans to allocate an envelope of Rs 10 billion to finance the projects of entrepreneurs. Sectors Entrepreneurs eligible for this new ‘Scheme’ must make an application to ‘MyBiz’, which is the one-stop service operated by SMEDA. Initially, only projects with activities in priority sectors will be considered. These sectors are: ICT and export of services, manufacturing activity, organic farming and agribusiness value-added activities, aquaculture and related activities, green and renewable energy, and handicraft. However, any other productive sector which is likely to generate employment may also be considered. Note that, according to our sources, the list of priority sectors is not exhaustive and that other sectors will be added as and when the results of the new plan are assessed. The evaluation method Any eligible project will be assessed by a committee chaired by the Permanent Secretary of the Ministry of Business, Enterprise and Cooperatives. This committee will then issue a ‘Letter of Intent’ if the entrepreneur’s project meets the criteria relating to priority sectors. Only after that the applicant secures the necessary funding from the MauBank will an SME Development Certificate be awarded to him. Who is eligible? Only SMEs constituted as a company after June 2, 2015 and also registered with the SMEDA from the same date are eligible for the SME Development Certificate. Existing businesses (before that date) are excluded because the objective is to attract new entrepreneurs. The advantages of SME Development Certificate Besides access to the financing plans of MauBank Ltd, through the MauBank SME Financing Scheme, where no personal guarantee is required, the SME Development Certificate holders will also be entitled to financing of up to 90% of the value of the project, with a repayment period up to 10 years. A two-year moratorium on repayment of capital, depending on the risk profile of the applicant, is also possible. Note that the interest rate is only 3.4%. Entrepreneurs can also benefit from a grant equivalent to 10% of the value of the project subject to a maximum of Rs 150,000. These funds will finance training and entrepreneurs’ technical support, and to pay a professional to set up a business, etc. Issues While the SME Development Scheme is already operational, some issues are yet to be clarified. As this is a new plan, the authorities expect issues to crop up during the first few months. The plan may then undergo some fine tuning. We gathered the opinion of entrepreneurs and other professionals. Here is a summary of key issues and doubts expressed and the implications of this new Scheme. Existing businesses The SME Development Scheme targets new entrepreneurs in specific sectors. This is the reason why only companies incorporated after June 2, 2015 will be considered. The aim is to attract genuine entrepreneurs and not ‘incentive shoppers’. Does this mean that existing businesses are totally excluded? Yes, but nothing prevents an existing entrepreneur to create a new company and set up a new project according to the eligibility criteria to avail of the new facilities, such as tax exemption. The downside of the scheme is that it is likely to create two categories of companies, those that will be exempt from corporate tax and those that will continue to pay the tax; It is expected that many existing companies will be tempted to create a new subsidiary to benefit from the fiscal measures. Filing of returns If new companies qualified under the Scheme will be exempted from Corporate Tax, are they required to file their annual accounts with the Companies Division and MRA? According to an accountant we consulted, there has been no amendment in this regard to tax laws or even the Companies Act, therefore companies are still under the obligation to file their final accounts as per the rules. Company accounts are nevertheless also required for other reasons, such as application for loans or leasing facilities, etc. However, our accountant fears that many entrepreneurs will no longer have recourse to accounting professionals to prepare their accounts as there will be no tax to pay, thus causing loss of opportunities for small accountants. Sectors Currently, only a few sectors are concerned. But other productive sectors likely to generate employment may also be considered, on a case to case basis. It is at the discretion of the committee to evaluate any project. For some entrepreneurs, the ideal method is to have a ‘rule-based system’ on established criteria to avoid the discretionary power, while for others, it is also important to consider projects on a case by case basis because even if a project does not fall under the list of priority sectors, it can be just as productive and create sustainable jobs. The approval mode The purpose of the SME Development Scheme is to encourage entrepreneurship, especially in priority sectors. But an evaluation system may have the opposite effect. With an ‘appraisal system’, it is the best ‘Business Plan’ that is likely to be awarded, while the most deserving entrepreneur who cannot afford the luxury of an expensive consultant to prepare an attractive business plan will be penalised. There is also the reluctance of some entrepreneurs to share ideas with no guarantee that their projects will be accepted. The ideal method would have been to grant the certificate upfront, on the basis of a ‘post control monitoring’, in pure business facilitation spirit, thus avoiding the bureaucracy surrounding the preliminary assessment, but with strict conditions, such as cancelling the certificate in the case of non- compliance. One disadvantage with a ‘Scheme’ is that it attracts more ‘incentive shoppers’ than real entrepreneurs, as was the case before 2006, until the authorities decided to abolish than twenty ‘Investment Schemes’, thus leaving a ‘level playing field’ for everyone, where only competition matters. Partnership The Ministry of Employment has decided that companies in the ICT/BPO sector which employ a foreigner must also hire a Mauritian and ensure knowledge transfer between the two. The same principle must be applied to foreign investors. The authorities should require those seeking an ‘Investor’s Permit’ to support a local entrepreneur, as a partnership, to ensure transfer of technology and know-how. We have already many foreign investors operating in Mauritius and many target the local market, to the detriment of our own entrepreneurs. Such a partnership will be a ‘win-win situation’ for all. Official statistics For better transparency, but also to provide a dashboard to entrepreneurs in real-time, it isperhaps time to capture data on investment and project implementation in several sectors so that entrepreneurs can make meaningful decisions based on facts. For example, entrepreneurs must know the number of approved projects by sector, the level of investment, the number of various permits issued (BLP, etc.) and a breakdown by region. Similarly, it is important to know the number of permits issued to investors and foreign professionals in Mauritius, by sector, by activity and by country of origin. With the availability of real-time figures, entrepreneurs can make projections, identify opportunities as well as risks and determine which sectors are niches and which ones are already saturated, thus avoiding further unproductive investment in the wrong channel. Research Many young professionals want to become entrepreneurs, but they lack the necessary guidance. There is a lack of innovative ideas as people tend to copy what others are doing. Existing entrepreneurs are sometimes not aware of new opportunities in their respective sectors. We can easily learn from what other countries are already doing. For example, the ‘Make It India’ initiative to be held from 13 to 18 February 2016 in Mumbai is an event to follow. Other similar events held around the world and the ideas expressed are enough to inspire us...

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