2. BUDGET
2009
A FORGOING BUDGET FOR TESTING TIMES
The fiscal policies on which the budget for the second semester of 2009 and the full year 2010 have been built bear
one striking characteristic: Government forgoes revenue in several instances where this is felt to be an effective way
of helping industrial sectors and business enterprises. Thus, the tax bill for tourism and construction will be lighter
by Rs 550 million, a number of SMEs will benefit from loan rescheduling, VAT will be refunded for construction
undertaken under programmes approved by the National Empowerment Foundation and travel tax to Rodrigues will
be suspended. This is why the Minister of Finance has been able to claim, rather proudly and with some sense of
satisfaction, that “protecting people is not only about what we do but also and equally important about what we do
not do”. But he has, in effect, also taken a number of steps in order to try and achieve the three priority objectives
which he has identified for the testing times ahead.
Three priority objectives
The objectives are three in number, namely saving jobs, protecting people and preparing for recovery. To that effect,
an action plan of five steps is proposed. They are business support, capacity building, a large public sector investment
programme, poverty eradication and the maintenance of an expansionary fiscal and monetary policy.
1
3. BUDGET
2009
It is reassuring that the action plan and its constituent measures are temporary for, otherwise, they would eventually
derail or destroy the economic reform started in 2006. Were it not for the exceptional recession presently threatening
Mauritius, it would have been hardly acceptable to record a budget deficit equal to 3.8% of Gross Domestic Product
(GDP) in 2008-09 (against a budgeted estimate of 3.3%) and to provide for a larger deficit of 4.8% of GDP for the
next six months.
Neo-Keynesian Style
As it is, the aim is to prepare the country for recovery by 2011. If this does not happen, there will be a real risk that
the public purse will be called upon to finance further stimulus packages in neo-keynesian style. This is why it is of
paramount importance that the Rs 8.85 billion earmarked to be spent in the next 18 months be disbursed as envisaged
and in a productive way.
Targeted Approach
Higher taxation had been tipped as being inevitable in the light of the reduction of fiscal revenue due to the recession
and of the financing of the stimulus packages. This has been proved wrong.
2
4. BUDGET
2009
The path chosen has been a targeted approach, namely levies on sectors deemed to be in better financial health,
such as banking and telecommunications. Furthermore, profitable firms will have to spend two per cent of their profits
on corporate social responsibility (CSR) activities or else transfer those funds to Government to be used in the fight
against poverty. In this connection, it is regretted that firms will be restricted to supporting only CSR activities which
are approved by Government. The approval should, at least, be on an ex post, rather than an ex ante, basis: that
will smack less of interventionism.
Solidarity
In a laudable gesture of solidarity, Ministers are being asked to forgo Rs.10,000 of their monthly remuneration until
December 2010. This will no doubt put pressure on other high revenue earners, both in the public and private sectors,
for similar action. It is comforting to observe that the eradication of poverty programme, introduced in 2008, is being
maintained and that moneys are being set aside for a new University campus.
Overall, what had been expected as a budget for an exceptional six-month period, marred by a deep economic crisis,
has turned out to be an action plan for eighteen months. The economic reform has been safeguarded, at least on
the assumption that the numerous support measures which have been announced – or repeated - are duly introduced
and realised. Nor have social benefits been curtailed.
3
5. BUDGET
2009
The budget will eventually be judged in accordance with the extent to which its proposals are implemented. It has
been rightly presented as an action plan, not as a vision or a mission statement. The proof of the pudding will be in
the eating.
The biggest question mark is about the beginning of the end of the world recession, since this will have a significant
bearing on the state and evolution of the economy of Mauritius. This is unfortunately beyond the control of the country.
Pierre Dinan
Independent Consultant
4
6. BUDGET
2009
This budget is for six months to December 2009 to mark a breakthrough by matching the fiscal year with the calendar
year. The central theme of the budget is to save jobs, protect the people and prepare the economy for recovery.
In view of the current economic crisis unfolding, GDP growth is expected to be between 2 - 2.5%. The impact of the
crisis on our small island nation could be deep and prolonged.
The Minister has drawn an action plan with 200 measures over an 18 months period to address the central themes
of this budget.
In so doing, the budget deficit will rise to 4.8% of GDP in Dec 2009 and 5% of GDP in Dec 2010. Assuming the world
economy recovers by 2011, budget deficit is expected to decline to 3.3% of GDP in 2011.
5
7. BUDGET
2009
HIGHLIGHTS OF FIVE PATH ACTION PLAN
Path One: Save jobs
• Line of credit for equipment modernisation by SMEs. Finance leases will be at concessionary rate and up to
30% will be guaranteed by Government.
• Additional Rs 300M from banks to support SMEs. Government guarantees 50% of such loans. Loans will be
at repo rate.
• Micro enterprises are encouraged to become corporate bodies. Fees for company registration will be waived
until December 2010.
• Incentives to take up employment in the printing sector.
• Setting up of an Emergency Export Credit Insurance Scheme until December 2010.
• New micro enterprise financing scheme for women of up to Rs 40,000 per beneficiary and Rs 400,000 per société.
6
8. BUDGET
2009
HIGHLIGHTS OF FIVE PATH ACTION PLAN
• “Work cum Training” scheme of Rs 300M. This scheme will enable companies in manufacturing and tourism
sectors facing a reduction in turnover to send their employees on training instead of laying them off.
• Various agro-industry projects (Food Crop Insurance Scheme, Additional 160A of land from MSPA, etc). Investment
in planned projects in cane sector on behalf of planters. Dividends accruing on investments will be kept for small
planters and workers.
• Setting up of Hotel Reconstruction Scheme till December 2010. Refund of the lower of 50% of wage bill or
difference between the new and old rental.
• Rescheduling of rental arrears for hotels (small hotels : 5 years as from January 2011; others : 3 years).
• Raising limit for transactions in domestic markets by freeport operators from 20% to 50%.
• Single licensing for freeport operators.
• Allow individual foreign and Mauritian investors to acquire hotel rooms and villas but they have to be made
available to hotel operators.
7
9. BUDGET
2009
HIGHLIGHTS OF FIVE PATH ACTION PLAN
• Suspension of rental payments for small hotels on less than one hectare and less than 50 bedrooms.
• Financing of up to Rs 5 Million for cost reduction projects through energy management for small and
medium hotels.
• Rs 200M to MTPA for promotional campaigns.
• Loan in Mauritian Rupee to finance the purchase of a residential property under IRS/RES scheme for amounts
greater than USD 500,000.
• Amending legislation to prevent non citizens from acquiring residential properties outside the IRS and RES
schemes without the required authorisation.
8
10. BUDGET
2009
HIGHLIGHTS OF FIVE PATH ACTION PLAN
Path 2: Boosting up project realization capacity
• Capacity building programme of Rs 190 million.
• New procurement policy in place with increased threshold to prioritise projects
9
11. BUDGET
2009
HIGHLIGHTS OF FIVE PATH ACTION PLAN
Path 3: Launching the largest investment programme in the history of Mauritius
New infrastructure projects
Cost - Rs (Bn)
Harbour bridge – By pass from North / South through traffic 8.0
Ring Road – Alternative access with multi point entries into Port Louis 6.0
Terre Rouge Verdun Link Road 2.0
Verdun Ebene Link Road 0.8
Bus rapid transit system 5.0
East West connector 4.0
10
12. BUDGET
2009
HIGHLIGHTS OF FIVE PATH ACTION PLAN
SHOVEL READY PROJECTS Cost - Rs (Bn)
New Modern Airport 11.00
Feasibility study for emergency runway 2.00
Container terminal expansion 5.00
Others 1.59
PUBLIC PRIVATE PARTNERSHIP PROJECTS Cost - Rs (Bn)
Tianli project 20
Highlands project – Modern town 100
Others 7
11
13. BUDGET
2009
HIGHLIGHTS OF FIVE PATH ACTION PLAN
Path 4: Protecting People
• Rs 300 M over next 18 months for Decentralised Cooperation Programme
• Integrated programme (egg production and horticulture) of Rs 240 M
• Banner to educate public on energy
• DBM will be waiving off penalty and interest for loans of less than Rs 50,000 ( 50% of capital is also being written
off on settlement)
• Construction budget exceeding Rs 50 M will be recommended to spend at least 1 % on artistic work.
• Rs 450 M for social benefits
• Rs 1.25 Bn for law and order
12
14. BUDGET
2009
HIGHLIGHTS OF FIVE PATH ACTION PLAN
Path 5: Policy measures for the future
SMALL CANE PLANTERS (28,000 PLANTERS)
Assistance to small planters with 12A or less
- Reduced contribution to CESS institutions by 20% for crop seasons 2009/10 and 2010/11 amounting to Rs.
30M per crop year
Assistance To Performing Artists
(International Development grants scheme for performing artists - total grant of Rs 10 M)
- International Travel grant of up to Rs 50,000
- International Collaboration grant of up to Rs 150,000
- Marketing Development grant of up to Rs 100,000
Income Support to Needy increased by 15%
University Campus for 8000 students for Rs 600 M.
13
15. BUDGET
2009
FISCAL PROPOSALS
INCOME TAX
Tax Year
• With the change in the Government fiscal year from 30 June to 31 December, the tax year will also change to
31 December. For this transitional period, individuals will be required to submit their income tax return based
on income derived for the period 1 July 2009 to 31 December 2009 by 5 April 2010.
Special Levy on Banks
• For the next two years, the special levy on banks will be increased to 1% on turnover and to 3.4% on profits.
14
16. BUDGET
2009
FISCAL PROPOSALS
Corporate Social Responsibility
• Profitable firms will be required to spend 2% of their profits on Corporate Social Responsibility schemes approved
by Government. Alternatively, such funds may be transferred to Government for implementing the schemes.
Solidarity Levy on Telephony Service Providers
• Profitable providers of fixed and mobile telephony services will have to pay a solidarity levy of 5% of profits and
1.5% of turnover for the next two years.
Exchange of Information
• The Income Tax Act will be amended to enable the Mauritius Revenue Authority to exchange information on
non-residents with foreign authorities.
Value Added Tax
• VAT paid on construction will be refunded to NGOs upon approval by the National Empowerment Foundation.
15
17. BUDGET
2009
FISCAL PROPOSALS
Registration Duty
• Duty will not be payable on the transfer of immovable properties as equity in a company for a Small and
Medium Enterprise.
• Investors buying a hotel villa for mandatory leasing back to the hotel, will pay registration duty at the rate of 5%
with a minimum of USD 70,000 or its equivalent.
Land Transfer Tax
• Single rate of 5% until 31 December 2010.
• IRS and RES promoters will pay 25% of the tax at the time of signature of the deed and the same percentage
every 6 months. However a bank guarantee will have to be given to the Registrar-General.
• Investors buying a hotel villa for mandatory leasing back to the hotel, will pay USD 50,000 or its equivalent on
sale of the villa to another investor.
16
18. BUDGET
2009
FISCAL PROPOSALS
Vehicle Registration Duty
• Electric cars will be subject to 50% of the current registration duty rates.
Road Tax
• Owners of electric cars will pay only 50% of the prevailing amount of road tax.
Customs and Excise Duty
• As from 23 May 2009, excise duty of Re.1 per can is payable on the import of soft and alcoholic drinks in
aluminium cans.
• Electric cars will be subject to 50% of the current excise duty rates.
Travel Tax
• The travel tax to Rodrigues is suspended until 31 December 2010.
17
