Mauritius Budget 2020/2021: A Robin Hood-esque Act
The Covid-19 pandemic crisis is not in our rearview mirror yet and has left the world in tatters, leaving sharp dents in the global economy. As countries around the world are preparing to exit the 'Great lockdown' and bring back a sense of normalcy among its people, policy makers have been called to the drawing board in a bid to find strategies to counter the worst recession since the Great Depression.
The Minister of Finance, Economic Planning and Development, Dr. the Honourable Renganaden Padayachy presented the National Budget 2020/2021 on 4 June 2020 – a budget dubbed by many as historic for it aims at tackling the systemic issues that emanated from the Covid-19 crisis whilst maintaining the social fabric. The maiden budget speech delivered by the minister was certainly marked by his advocacy of a fairer wealth distribution and his sheer determination to close the income gap inequality among the Mauritian population.
Financial sector and global business
“When the flood cometh it sweepeth away grain as well as chaff”, Robin Hood
Mauritius has not been spared – the Covid-19 flood has indeed swept away growth and has activated the “rewind” button to our economy. While the International Monetary Fund has predicted a contraction of 3% in global output, the latest forecast for Mauritius points to a contraction of up to 11% for 2020 following a stall in its economic activity caused by the crisis. In addition, the announcement of Mauritius’ possible inclusion in the European Union (EU) List of High Risk Third Countries (the “List”) on 7 May 2020 sent shock waves through the country. Troubled times lay further ahead.
In his budget speech titled “Our New Normal: The Economy of Life”, Dr. the Honourable Renganaden Padayachy, has reaffirmed the government’s ambitions to convince the EU to remove Mauritius from the List by proposing the implementation of the following measures in a bid to complete the five remaining recommendations flagged by the Financial Action Task Force (FATF):
– Risk-based supervisions in accordance with the recommendations of the FATF;
– Targeted outreach programmes to promote clear understanding of money-laundering and terrorist financing risks;
– Increased reporting of suspicious transactions;
– Targeted financial sanctions in cases of terrorist financing; and
– Timely access to beneficial ownership information.
Moreover, a new AML/CFT (Miscellaneous Provisions) Bill will be introduced to complement existing legislative framework and a dedicated and specialised financial offences court will also be set up.
To further enhance the attractiveness and competitiveness of the financial services sector, the following products will also be introduced:
– The Central Bank digital currency
– An insurance wrapper
– Variable Capital Companies
– An inaugural sukuk issuance by the Bank of Mauritius
– Green and blue bond frameworks by the Bank of Mauritius.
Opening to the world
As part of its economic recovery plan, the government has recognised the need for attracting investors and professionals to the island. To further incentivise foreigners, the work permit and residence permit will be combined into 1 single permit i.e. the occupation permit (OP). The OP validity will also be increased from 3 years to 10 years and will be renewable thereafter if all conditions are met. Similarly, the validity of the permanent residence will be reviewed from 10 years to 20 years. Moreover, minimum turnover and investment will be reviewed downwards and will be abolished for innovator occupation permit. Spouses of OP holders will no longer be required to apply for a separate OP should they consider working or investing in Mauritius. OP holders will also be authorised to bring their parents to live on the island.
Other sectors
A series of other measures geared at rebuilding the economy was unveiled based on the following triptych:
– Rolling out the investment and economic recovery plan
– Engaging in major structural reforms
– Securing sustainable and inclusive development.
If the pandemic mayhem has taught us one thing, it is that self-sufficiency and food security remain a priority and it is for that reason that the government is proposing a boost to the agricultural sector through the implementation of a comprehensive National Agri-Food Development Programme. The latter is geared at promoting a farm-to-fork concept, thus decreasing our reliance on imports. The construction and the manufacturing industries are also of prime focus and the “Made in Mauritius” brand will be encouraged and promoted. The government will support the first two years of operation of a “Made in Mauritius” warehouse set-up in Tanzania and Mozambique.
A paradigm shift is also being proposed to the country’s export strategy and a few of the measures include the waiving of port dues and terminal handling charges for exports from July to December 2020 and the reduction of those fees by 50% for the period January to June 2021. The freight rebate scheme is being extended for exports towards Africa.
Of all sectors, the tourism industry is likely to be the worst affected one since it has come to a complete halt ever since the imposition of the sanitary curfew by the government in March 2020. Revival measures for this particular industry include the introduction of “Aparthotels Scheme” that will enable existing hotels to convert part of their accommodation units into serviced apartments that can then be sold individually. In addition, the Invest Hotel Scheme will be amended to enable owners to double their yearly occupation from 45 days to 90 days. Other salient measures include: licence fee waivers being granted to licensees of the Tourism Authority and Beach Authority for a period of 2 years and the implementation of a 1-year rental fee holiday for hotels on their rental of state lands. The Hotel Reconstruction and Renovation Scheme rebate of 50 % on rental of state lands for hotels will also be increased to 100% for two years up to 30 June 2022.
Social measures
“Rise and rise again until lambs become lions”, Robin Hood
“We will, as a nation, rise up together to this new normal” announced the minister in his introductory lines, setting the tone for a plethora of socialist measures aimed at closing the income inequality gap. These include:
– The construction of social housing units across the whole island for vulnerable and low/middle-income families. Various subsidies will also be offered on the construction cost of houses
– The abolishment of the National Pension Fund (NPF) in which employees contribution were capped and the introduction of a contributory, participative and collective system, the Contribution Sociale Généralisée (CSG), which effective as from 1st September 2020, employees earning up to Mur 50,000 (about $1,257) monthly, will contribute 1.5% and their employers 3% on monthly salary. For those earning more than Mur 50,000, the contribution will be 3% and that of employers 6% of monthly salary. Contributions under the CSG is uncapped and will benefit those at the bottom of the ladder
– The introduction of a service employment cheque for workers who previously could not access the contributory pension system
– The levy on the excess amount of chargeable income plus dividends of a resident Mauritian citizen will be revised from 5% to 25 % and will be applicable as from income of Mur 3 million (about $75,398) annually
– The introduction of a levy targeted at companies (except those operating in the Global Business sector and the tourism industry) generating gross income of Mur 500 million (about $12.5 million) and above
– An increase in the income exemption thresholds thereby effectively either reducing or eliminating income tax for some 55,000 middle-income households.
By and large, the Honorable Minister delivered a budget that addressed the challenges being encountered by the various spheres of the economy crippled by the pandemic crisis. This will surely pave the way for economic recovery in a post-Covid-19 world and will be remembered as the budget that left no one stranded and alone in the woods.
Click here to read ITL's full Budget Highlights 2020/2021.
Established in 1999, Intercontinental Trust Limited (ITL) provides a plethora of financial and fiduciary services to a diversified client base including private equity firms, real estate multinationals, financial institutions, investment managers and high-net-worth individuals among others.
ITL is located in Ebene, the financial centre of Mauritius and has offices in Singapore, Seychelles and representative offices in South Africa and Kenya.