Companies doing business in Africa are advised to keep a close eye on constantly shifting tax developments in order to optimally structure their operations and remain within the gambit of the law in their remittances to tax authorities. In Mauritius, for instance, new levies on prosperous companies are being seen as a new form of income tax.
That’s according to Ryaad Owodally, partner: tax at Ernst & Young Mauritius.
“With the introduction of a standardised levy on telecoms providers contained in the Finance (Miscellaneous Provisions) Act 2009, a further income tax over and above the standard rate of 15% is applied," he says. "This brings the net effective tax rate for these companies to more than 15%. In some instances the effective tax rate can be more than 25%, the tax rate for non tax incentive companies before the substantial changes made in 2006, of the taxable profits."
Ryaad says the law is applicable to providers of public fixed or mobile telecommunication networks for two tax years. Specifically, the levy calls for a charge of the aggregate of 5% of book profit and 1.5% of turnover; companies which are in a book loss position or whose profit does not exceed 5% of its turnover will not be subject to the levy.
“Foreign tax credit can be claimed – and also that the term ‘turnover’ is not defined in law, leaving it open to interpretation,” he notes.
Despite the global financial sector crisis, banks in Mauritius continue to perform well and are as a result, of some interest to the revenue authority, Ryaad adds. “The financial services sector is generally profitable in this country. A special levy payable by banks sees rates increased to an aggregate of 3.4% of book profit and 1% of operating income for two tax years from an aggregate of 0.7% of book profit and 0.5% of operating income,” he explains. Again, foreign tax credit can still be claimed.
In the area of corporate social responsibility (CSR), the Mauritian government is ratcheting up requirements from companies doing business on the island. While it may be called CSR, Ryaad notes: “Make no mistake, this is a tax. It is levied as a mandatory payment of 2% of book profit, which excludes capital gains or losses but not exempt income,” he explains. This latter provision may lead to double taxation of income, Ryaad notes, adding that companies have the option to make payment to the Mauritian Revenue Authority or to contribute to government approved social programmes.
There are exclusions, including income derived from non residents. Companies holding a Global Business Licence, non resident sociétés, trusts or trustees under unit trust schemes and IRS companies are also outside the scope of CSR.
Other relatively minor amendments introduced, Ryaad relates, include a change of the fiscal year to synchronise with the calendar year, while provisions for the exchange of information and recovery of foreign taxes have been enacted. Corporations holding Category 1 Global Business Licences are also now permitted to pay their taxes in US dollars, Euros or British pounds.
“Additionally, the turnover threshold for mandatory electronic-filing of returns is reduced from Rs [Mauritian Rupees] 30 million to Rs 10 million. This is an effort to follow international practice; however, it could be cause for concern as many financial managers prefer paper filing and the systems and processes of many companies are still geared towards paper filing,” Ryaad notes.
What is clear is that the Mauritian government is attempting to balance a low company tax rate of 15% which encourages investment and development, with a sound tax base which ensures it benefits from the prosperity of high performance industries. “For that reason, the authority is applying these levies on banks and telecoms providers without calling them taxes per se – but taxes they are,” Ryaad adds.