On 2 June 2023, the Minister of Finance, Economic Planning and Development presented the Mauritius National Budget 2023/2024. The focus of the budget revolved around these three main items: strengthening, continuing and sustaining the local economy.

Revenue estimates for 2022/23 have been raised by 2% to Rs 153 billion, following the better than expected economic performance.

Projections for 2023/24 are also expected to grow significantly to about Rs 179 billion and will remain principally financed by taxes, but increasingly through social contributions – the main component of which is the "Contribution Sociale Généralisée".

Approximately 60% of the Rs 156 billion in taxes is derived from taxes on goods and services. The overwhelming majority of remaining taxes stems from income tax and taxes on corporate profits.

In 2023/24, given the positive economic outlook, the government expects to collect almost 20% more in taxes.

Below are the major impacts of the 2023/24 budget speech.

1. Corporate - Transfer of shares

1.1 Prior absence of clarity relating to registration

There is currently a lack of clarity in the relevant legislation (namely, the Registration Duty Act 1804 and the Land (Duties and Taxes) Act 1984) as to more specific information and documents that the Registrar-General may seek at the time of registration of a share transfer form of a company holding immovable property in Mauritius.

It was only at the time of registration of the deed of transfer with the Registrar-General that a person will be informed of the Registrar-General's requirements (exercised at the sole discretion of the Registrar-General and sometimes varying from case to case) in respect of additional information and/or documents to be provided.

1.2 A welcomed clarification

Henceforth, when a person is acquiring more than 20% of the share capital of a company holding an immovable property, that person should provide a description of the immovable property held and a site plan when registering the deed of transfer.

The above relates to the additional information and document that will need to be inserted in, or annexed to, as the case may be, a share transfer form witnessing a transfer of shares in a company holding immovable property.

The above-mentioned proposed change as announced by the Mauritius government in the 2023/2024 budget is most welcomed as it shall provide for such clarification to be set out in the relevant act(s), thus ensuring a smoother process when it comes to the registration of share transfer forms with the Registrar-General.

2. Funds, Private Equity and related taxation matters

2.1 Increase in rate for partial exemption regime with regards to interest

While previous years witnessed a boom in terms of investments through Mauritius into a wider range of jurisdictions (especially African countries), traditionally and even now Mauritius remains a favoured platform for channelling investments into India.

With the amendments to the Mauritius-India double taxation avoidance agreement (Treaty) effective in 2017, the private equity sector connected with investments in India through Mauritius experienced a notable shift in an established taxation practice – capital gains on equity investments in a company resident in India shall be taxed in India (as opposed to Mauritius previously). This change had a significant effect on how promoters and investors structured their investment in India (e.g. through the use of more complex, tiered structures in Mauritius) to minimise the impact of the changes to the Treaty.

However, the amended Treaty provided two positive developments relating to interest income, namely (a) the withholding tax on interest income paid to a Mauritian resident liable to tax in India was set at 7.5% (compared to 10% for other competing jurisdictions, such as Singapore and the Netherlands) and (b) the previous zero tax policy on capital gains remained applicable in respect of interest income which remained taxable in Mauritius. On paper, Mauritius remains an ideal jurisdiction for investment in debt portfolios but, in the last few years, the Mauritius International Financial Centre (IFC) has not experienced the anticipated surge in debt-geared structures.

To address this issue, the Mauritius government announced in the 2023/2024 budget that the partial exemption regime of 80% which may be availed by, inter alia, collective investment schemes and closed-end funds has been increased to 95%, resulting in an effective tax rate of approximately 0.75% in respect of foreign-sourced interest income. Coupled with the existing interest-related incentives under the Treaty, other recent measures such as the introduction of the variable capital company in 2022 and more restricted taxation powers to the Mauritius Revenue Authority (see below), we expect this increase in the exemption rate on interest income to attract more fund promoters/managers and maintain Mauritius' position as a jurisdiction of choice to contribute further to India's US$1 trillion (and expanding) debt market.

2.2 Separation of tax liabilities within protected cell companies and variable capital companies

The protected cell company has always been an interesting structuring option due to its unique legal principle – a single legal entity, able to create any number of cells not having separate legal personality but with a legislative framework ensuring that the assets and liabilities within each cell are segregated from those of the protected cell company itself and all other cells. Investors, especially in funds having a diversified investment strategy, benefit from having their own cell, whereby investments made through such cell are protected from any potential claim of a creditor of another cell. The same legal principle is extended to sub-funds and special purpose vehicles within the new variable capital company (which can also elect to have separate legal personality).

However, a contradiction to the above legal principle of segregation of assets and liabilities resides in the Mauritius Income Tax Act, namely with its provisions allowing the Mauritius Revenue Authority to seek the recovery of tax owed by a cell (in the case of a protected cell company) or a sub-fund/special purpose vehicle (in the case of a variable capital company) from the assets of other cells, sub-funds, special purpose vehicles, the protected cell company or the variable capital company (as the case may be). Such powers of the Mauritius Revenue Authority eroded the confidence of promoters, managers and investors in those structures in that they provided protection to investors from third parties but left a wide enough gap for the Mauritius tax authorities to lift this protective veil.

In the 2023/2024 budget, the Mauritius government announced that the Mauritius Revenue Authority will toe the line in terms of treating each cell, sub-fund or special purpose vehicle (as the case may be) as an independent entity for tax recovery purposes and will not allow the tax liability of one such entity to extend to another entity within the same structure. This new approach from the Mauritius Revenue Authority will also be beneficial as it will prevent other foreign tax authorities and third parties from challenging the principle of segregation of assets and liabilities on the grounds that not even the tax authority of Mauritius recognises and applies such rule. We anticipate that this change shall be effected through amendments in the Income Tax Act upon the proclamation of the forthcoming Finance (Miscellaneous Provisions) Act 2023.

Mauritius has high hopes for the attractiveness of the variable capital company for promoters, managers and investors in that it is a novel structure which provides more advantages that its Singapore-based namesake. The above measure in the 2023/2024 budget will no doubt add a further arrow to the IFC's quiver.

3. Employment

3.1 Minimum salary and the flexible working method

As from 1 July 2023, the minimum revenue (including the CSG Income Allowance) of an employee in full-time employment must be no less than Rs 15,000 per month. It should be noted that the CSG Income Allowance paid by the Mauritius Revenue Authority has been increased from Rs 1,000 to Rs 2,000 for employees earning up to Rs 25,000 monthly.

With increasing inflation rates, the purchasing power of working individuals had to be increased. While the yearly increase in additional remuneration ranged from less than Rs 500 in previous years, the additional remuneration of Rs 1,000 effective as from January 2023 was seen as being a steep increase for many companies, especially SMEs. It remains concerning how employment will be preserved with the increase in minimum salary only a few months later.

A reluctance in setting up flexible working arrangements, including working from home, a hybrid model or flexitime, has been witnessed in the different industries in Mauritius. While many countries adopted the four-day working week on a pilot and trial basis before implementation, a four-day working week has been announced in the national budget 2023/2024 without any testing. It remains to be seen how many companies accept restructuring their working week and whether the law will provide for longer working hours. The refusal of flexitime by an employer requires reasonable business grounds, including inability to reorganise work or detrimental impact on quality or performance. It also remains to be seen whether the same criteria for determination or refusal of any request to work four days a week will be applied.

3.2 Leaves and termination

The introduction of a stand-alone five-day leave for employees who have experienced a miscarriage is welcomed, and the legal amendment will close the gap between the applicable law and the reality affecting many women.

While it was mandatory for employers to refund any untaken annual leave to workers earning a monthly basic salary equal to or less than Rs 50,000, it has now been announced in the national budget 2023/2024 that a bank of accumulated untaken annual leave will be introduced. It remains to be seen how the legislation will be amended to provide for situations where such leave, despite being accumulated, cannot be taken by the worker due to business exigencies, and whether the bank of annual leave is capped for the following year.

Following the amendments brought to the Workers' Rights Act by the Finance (Miscellaneous Provisions) Act 2022, there was confusion as to whether employees can be dismissed merely following the receipt of written explanations, without providing a real opportunity for employees to test the employer's version and evidence. The need for a fair oral hearing prior to dismissal will now be reinforced and written explanations alone will not suffice.

4. Banking

4.1 Improving the ease of doing business

The Development Bank of Mauritius (DBM) shall extend an SME interest-free loan scheme and the COVID-19 Special Support Scheme until June 2024, and also write off outstanding loans of more than 20 years and loans to deceased micro-entrepreneurs. This measure simplifies the way of doing business and supports local entrepreneurs in Mauritius by facilitating the funding and support of SMEs, while promoting inclusivity.

4.2 Crop sector

• DBM will introduce a new agricultural loan scheme with a 3.5% interest rate and a maximum ceiling of Rs 10 million.
• DBM will extend the Crop Replantation Scheme at an annual preferential rate of 2.5% to biomass and afforestation.
• DBM will write off outstanding loans of more than 20 years and loans of deceased planters.
• DBM's efforts to support the re-emergence of the cane industry are working. Furthermore, just last year, its Cane Revolving Fund Scheme has enabled the replantation of some 7,000 arpents of land. The Scheme is being increased from Rs 200 million to Rs 500 million.

These measures are meant to create resilience in the agricultural sector by increasing self-sufficiency and reducing import dependency. However, the interest rate on agricultural loans has been raised by 1% (2.5% per annum in 2022/2023). This places various constraints on planters and field workers, making it more difficult for them to repay the loan.

4.3 Financial services

Mauritius International Financial Centre has consolidated its position by:

• extending the scope of variable capital companies to allow their use for family offices and wealth management;
• introducing a new framework to support the licensing and operation of Electronic Money Institutions (EMIs); and
• introducing a Wealth Manager and Family Officer licence under Private Banking.

The above measures will consolidate Mauritius as an international financial centre of choice for cross-border investments. Moreover, these measures will provide investors with a secure and robust platform for international markets and encourage them to structure their investments from Mauritius.

In line with its sustainability agenda and to promote the greening of the economy, the Bank of Mauritius will develop a carbon trading framework for both blue and green credits. Developing a carbon trading framework that incorporates blue and green credits can act as a catalyst for the greening of Mauritius' economy. It encourages emission reductions, mobilises finance for green projects, fosters innovation and promotes international cooperation. By taking the lead in implementing such a framework, the Bank of Mauritius can play a crucial role in driving sustainable development and mitigating climate change impacts on the country.

To further protect depositors, the Bank of Mauritius will operationalise the Mauritius Deposit Insurance Scheme and the Mauritius Deposit Insurance Company, which will provide significant benefits to depositors by safeguarding their funds, promoting confidence in the banking system, ensuring financial stability, and encouraging competition and innovation in the financial sector.

However, the existence of deposit insurance can also create moral risks for banks. Knowing that their depositors' funds are insured, banks may take on excessive risks, engage in speculative activities or become less cautious in their lending practices. This behaviour can undermine the stability of the banking sector and increase the likelihood of financial crises.

The digital Rupee will be rolled out in November 2023 on a pilot basis. It can offer convenience and accessibility to individuals and businesses. It enables digital payments, transfers and other financial services to be conducted easily through mobile devices or online platforms, eliminating the need for physical cash or visiting bank branches.

However, not enough is said about the manner in which this measure could potentially transform the financial services sector. The introduction of a digital Rupee may impact the stability of the financial system. It could potentially lead to rapid shifts of funds between digital and traditional banking channels, affecting liquidity and monetary policy implementation. Careful regulation and coordination with monetary authorities are necessary to ensure financial stability.

4.4 Income tax

The tax rates for banks are as follows:

• 5% for chargeable income up to Rs 1.5 billion; and
• 15% for chargeable income above Rs 1.5 billion.

This measure can be seen as progressive. Indeed, by applying a lower tax rate on chargeable income up to Rs 1.5 billion, the tax system follows a progressive approach, with smaller banks or those with lower incomes paying a relatively lower tax rate, allowing them to retain a larger portion of their earnings for reinvestment or other business needs. This progressive tax structure helps distribute the tax burden more equitably among banks based on their financial capabilities.

However, the revised rates will be in effect beginning with the fiscal year 2022/2023, and therefore banks with fiscal years ending in March 2022, June 2022 or September 2022 may be required to file an updated corporation tax return (CTR) to reflect the change in tax rate. The measure's retrospective aspect may be called into question. If an updated CTR is presented for the prior year, then the applicable interest and penalties on any underpayment of tax could be waived.

Moreover, the termination of the incentive, the reduced rate of 5% granted during the years of assessment 2020/2021 and 2021/2022 could lead to an increase in tax burden on banks.

4.5 Value Added Tax

Currently, the rates of the special levy on banks are as follows:

• 5.5% for banks having operating income of no more than Rs 1.2 billion from transactions with residents; and
• 4.5% for banks having operating income in excess of Rs 1.2

The rate of the levy will be aligned to 5.5% for all banks.

This measure ensures that banks have a level playing field when it comes to their responsibilities to the special levy, which is still calculated on banks' leviable revenue from transactions with residents. Indeed, the tax system guarantees that all banks, regardless of size or market position, contribute fairly by calculating the special levy based on the leviable revenue of banks from dealings with residents. By dispersing the tax burden proportionally, this strategy fosters fairness and equity.

Furthermore, linking the special charge to transactions with individuals might encourage banks to provide services to a larger spectrum of individuals and communities. Banks may aim to expand their client bases and connect with communities in order to collect more revenue subject to the tax. This can lead to increased access to banking services for underprivileged communities, promoting financial inclusion and closing the gap between banked and unbanked people.

While the implementation date of this measure has not been declared, we believe that the new rate of the special levy should be applied prospectively. It is believed that the rate adjustment would still not apply to a bank that has experienced a loss in an accounting period. The special levy is currently limited to 1.5 times the special levy for the assessment year 2017/2018 (maximum levy), and therefore a change in the rate of the special levy should have no effect on the maximum levy.

4.6 Amendments to the Banking Act

The Banking Act will be amended to replace the term "Repo Rate" with "Key Rate" in the context of the implementation of the new monetary policy framework by the Bank of Mauritius. Consequential amendments will be made to other relevant legislations accordingly.

This decision could be crucial to address the deficiencies of the present framework in view of the constantly changing economic and financial conditions; to enhance the monetary policy transmission mechanism; and to strengthen the effectiveness of monetary policy.

4.7 Labour force

Obtaining an occupation permit will no longer be conditional on having a local bank account.

Instead of a local bank account, a certified bank statement from the applicant's country of origin or residence showing proof of funds would be accepted, together with a written undertaking to open a local bank account within two months. The measure is welcomed since it reduces the delays in the issuance of certain permits and eases the process for foreign nationals to work in Mauritius.

5. Environmental, Social and Governance (ESG)

5.1 Overview

Since 2021, the government has been focusing on ESG, but mainly on the environmental aspect with measures to promote green energy and address climate change vulnerabilities.

We have been noting the allocation of billions of rupees to renewable projects and to several authorities involved in pollution and waste management.

In the budget 2022/2023, it was stated that a carbon credit trading framework and an ESG framework would be developed, which unfortunately is not the case. With the national budget 2023/2024, we note that the vision has now been translated into practical action points and clear means of implementation.

There is also an attempt to address the social and governance components of ESG. Most importantly, there is a clear enthusiasm and new creativity to put Mauritius on the map as an investment destination platform for businesses and individuals that have ESG principles at the forefront.

5.2 Environment

Under the Environmental pillar of ESG, retrieving energy from renewable sources has been widely encouraged in the national budget 2023/2024.

A biomass framework is being implemented and cane trash and woody biomass will be remunerated in similar fashion to bagasse. In addition, to address pollution and waste, a deposit-refund scheme for plastic bottles and aluminium cans will be introduced. The rate of refund of PET bottles recycled locally has been doubled from Rs 15 per kg to Rs 30 per kg.

Grants are being provided for the installation of a rainwater harvesting system to preserve our natural resources. Furthermore, for resilient and efficient water resource management, a Water Resources Bill will be introduced which will consolidate various enactments related to water resources and provide a legal framework for the management, regulation, development, conservation, sustainability and shared use of water resources in Mauritius, along with making use of alternative sources of water.

The sum of Rs 1.6 billion has also been earmarked for projects to address climate change under the National Environment and Climate Change Fund. The design and practical implementation of such projects are still awaited.

The Tourism Authority will focus on sustainable tourism development by setting up a sustainable tourism unit.

With regards to renewable energy and efficiency, the Energy Efficiency Management Office (EEMO) and the Mauritius Renewable Energy Agency (MARENA) will be merging to carry out some interesting initiatives, including awareness campaigns to sensitise consumers on adopting energy-efficiency initiatives, and developing guidelines for energy efficiency and energy conservation for the industrial and commercial sectors.

On its route to transition towards carbon neutrality, the government has announced the following measures:

• 50% waiver on the increase in electricity prices for the next two years for companies moving towards 100% renewable energy;
• 75% subsidy for the manufacturing industry to conduct energy audits. As part of a pilot project, energy audits will be carried out in 30 cooperative societies to enhance energy efficiency;
• the introduction of a carbon neutral scheme by the Central Electricity Board for the ICT industry;
• the development of a carbon trading framework for both blue and green credits by the Bank of Mauritius;
• the installation of renewable energy facilities via floating solar PV systems and hydropower plants. An Ocean Thermal Energy Conversion power plant will also be set up on a pilot basis; and
• a commitment to achieve a fully green bus transport system by 2035. To achieve this, a 30% subsidy up to a maximum of Rs 3.5 million on the purchase of electric buses will be provided to bus companies and the Industrial Finance Corporation of Mauritius will provide loans at a rate of 2% for such purchase.

All the measures are welcomed to comply with Goal 12 (which relates to responsible consumption and production) and Goal 7 (which relates to affordable and clean energy) of the United Nations Sustainable Development Goals (UN SDGs).

Another interesting ESG measure announced in the national budget 2023/2024 is the introduction of the Sustainable City Scheme whereby non-citizens will be able to acquire a residential property in a sustainable city and be eligible for a residence permit for a minimum acquisition price of US$ 375,000. Although the Smart City Scheme was already a promoter of sustainability, it is refreshing that the government has created a separate scheme for sustainable cities, where it is expected that there will be new regulations and a lot more sustainability requirements.

5.3 Social

Under the Social pillar of ESG, and in an attempt to facilitate social opportunities for women, the focus has been to increase access to childcare which involved measures ranging from providing grants to double deduction for the upgrading and setting up of childcare centres. It was also announced in the national budget 2023/2024 that all new shopping malls, office buildings and hotels must have a nursing room for women, and all companies with more than 250 employees must provide necessary facilities for workplace-based childcare.

The measure of providing companies with an increased tax deduction of 300%, should it employ disabled individuals, will increase the disabled individuals' access to the workplace and promote diversity and inclusion in the workplace.

To promote an inclusive and equitable access to education, and in line with Goal 4 of the UN SDGs (which relates to quality education), pre-primary education in Mauritius will be free as from 1 January 2024.

For access to healthcare, with several measures to modernise the system having been announced, the more remarkable and bold measure is for the government to cover the full costs of overseas treatment of a child up to the age of 17 years, for medical treatments not available locally. Furthermore, the full costs of the local and overseas treatment of children diagnosed with cancer will be borne by the government.

To help eradicate poverty in line with Goal 1 of the UN SDGs, a new relative poverty line for Mauritius for measuring poverty and establishing the criteria for assessing vulnerable households will be implemented. A Proxy Means Test used to determine eligibility for support under the Social Register of Mauritius will be reviewed to take into account changes in the socio-economic profile of people living in absolute poverty.

The scope of the Social pillar goes a little deeper – there are announced initiatives for encouraging creative arts and supporting artists, and further initiatives which support victims of domestic violence and children in foster care, and vulnerable households in Mauritius.

5.4 Governance

Under the Governance pillar and to promote board diversity, it was announced in the national budget 2023/2024 that all listed companies shall have a minimum of 25% of women on their boards.

There have also been some proposed amendments to the Financial Intelligence and Anti-Money Laundering Act and the Financial Services Act.

For enquires contact Neha Chadha-Balgobin who will refer same to the appropriate law practitioner.