MAURITIUS: THE RECENTLY INTRODUCED FINANCE ACT, 2020, BROUGHT NUMEROUS CHANGES
The President of Mauritius assented to the Finance (Miscellaneous Provisions) Act 2020 (Finance Act) on 7 August 2020. This follows the passing of the Finance Act by the National Assembly on 4 August 2020.
This year, three major laws have introduced far-reaching reforms touching upon a variety of sectors of the economy, partly in response to the challenges this past year has brought about.
Earlier during the year, with the urgency created by the COVID-19 pandemic and the lockdown in Mauritius, the Parliament passed the COVID-19 (Miscellaneous Provisions) Act 2020 (COVID-19 Act) which made amendments to 56 legislations to cater for the impact of the coronavirus and provided for the relaxation of certain requirements during the affected period.
This was followed by the Anti-Money Laundering and Combating of the Financing of Terrorism (Miscellaneous Provisions) Act 2020 (AML/ CFT Act) which was passed by the National Assembly on 7 July 2020 to bring further reforms in the financial services sector and to comply with the recommended international best practices of the Financial Action Task Force (FATF).
The AML/CFT Act is a very important piece of legislation and a timely response to the FATF and European Union following the inclusion of Mauritius on the FATF’s list of ‘Jurisdictions under Increased Monitoring’ and the EU’s list of high risk third countries.
Finally, the Finance Act gives effect to the measures announced in the Budget Speech 2020-2021: ‘Our New Normal – The Economy of Life’. The Finance Act is largely designed to cope with the fallout following the COVID-19 pandemic and is a continuation of the major structural reforms being implemented by the Government.
In particular, the use of digital technology has been introduced in key legislations as a means of compliance with legal obligations. In addition, companies engaged in the tourism industry that are most affected by the aftermath of the coronavirus have been granted a time extension for the payment of corporate taxes.
The Finance Act has introduced a major structural reform to the national pension system. With effect from 1 September 2020, the existing National Pension Fund will be replaced by the Contribution Sociale Généralisée (CSG). Under the new system employers and employees of the private sector and (now) self-employed people will be required to contribute to the CSG at the rates to be prescribed by the Minister of Finance in respect of their remuneration.
While the Finance Act does not specify the amount that needs to be contributed to the CSG, the Minister of Finance has, in his Budget Speech, proposed a progressive system, whereby in respect of employees earning up to MUR 50 000, a contribution at the rate of 1.5% must be made by the employees and 3% by their employers, and in respect of employees earning more than MUR 50 000, a contribution of 3% must be made by the employees and 6% by their employers.
A contribution of MUR 150 (approximately USD 3.75) has been proposed for self-employed people. The application of the CSG on the salaries of employees with no capped amount (as was previously the case) is a disguised tax on the contributories and an additional burden on businesses in these difficult times.
Further, the low flat rate of MUR 150 (approximately USD 3.75) applicable to self-employed people, questions the fairness of the systems as this would mean that employees earning the minimum wage would contribute the same amount to the CSG as high income earning self-employed people such as top lawyers, doctors and engineers.
While it was widely acknowledged that national pensions needed reform in view of the ageing population and increased social bills brought about by certain recent populist measures, it is not entirely clear how the CSG remains in line with the need to enhance the competitiveness of the economy in the wake of certain crises that appear poised to endure for the times to come.
We have highlighted the changes and analysed the Finance Act here.