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28 August 2018 Mauritius amends personal income tax provisions under 2018 Finance Act This Alert summarizes the main changes made by the Finance (Miscellaneous Provisions) Act 2018 (FMPA 2018) to the personal taxation of individuals under the Income Tax Act (ITA) 1995. The changes include:
Two tax rates apply for individuals as from the year ending 30 June 2019. Where the chargeable income is less than Rs650,000 the tax rate is 10%. The tax rate is 15% if the chargeable income is more than Rs650,000. The change does not represent the introduction of a progressive tax system. Though the law does not provide the applicable tax rate if an individual has a chargeable income that is equivalent to Rs650,000, we understand that the Mauritius Revenue Authority (MRA) will apply the 10% tax rate. The 10% rate does not apply to property income of nonresidents so that the net rental income and royalty income would be taxable at the 15% rate. Where a nonresident has other Mauritian sourced income, it should benefit from the 10% tax rate if his chargeable income is less than Rs650,000. The amending law does not provide the mechanism to apply the threshold of Rs650,000 in the event a nonresident has income from Mauritian-based properties and other Mauritian taxable income. Consistent with the principle of non-discrimination, the income from Mauritian-based properties should not be considered to determine the applicable tax rate for a nonresident individual. The basic Income Exemption Threshold (IET) for all Categories has been increased by Rs5,000: the amount of IET depends on the number of dependents and is summarized below.
This measure will increase the disposable income of all resident individuals. With the policy decision to increase each of the IETs by a flat amount of Rs5,000, the percentage increase is higher for an individual who does not have any dependents. This measure also implies that the exempt portion of the Mauritian-sourced retirement pension of Mauritian nationals who are not resident in Mauritius is increased by Rs5,000. A definition has been introduced regarding a rainwater harvesting system. It is a system to capture, filter and store rainwater and includes consultancy, design, works, gutters and specialized water tanks for the setting up of the system. The definition is the result of the investment allowance introduced to individuals on their investment in a rainwater harvesting system. Taxpayers should keep their documentary support for these systems. The fact that the individual may engage a number of persons that may provide goods or services used in matters other than the provision of a rainwater system implies that the deliverables should not be ambiguous. The relevant contacts, appropriate warranties and invoices are the minimum documents the individual is required to keep. A sub-section was introduced on the taxation of nonresident individuals deriving income from Mauritian-based properties. The net rental income is computed at 15%. With this amendment a nonresident may be subject to two tax rates; the interaction of this change with any tax losses the individual may incur during a year or tax losses that are brought forward should be clarified. Various methodologies are available and it would be useful if these can be addressed in a timely manner. A member of the Mauritius Society of Authors established under the Copyright Act would be allowed to treat 50% of its gross income as an allowable expenditure. This provision does not apply to literary works. To the extent that the actual allowable expenditure is less than 50% of the gross income of the individual, this measure effectively lowers the tax base of the affected individuals. Accordingly, annual allowances cannot be claimed in addition to the 50% deduction: the extra deduction would also not be available. From a purely administrative perspective, this amendment is a positive development. It is critical that accurate records are maintained for the purposes of computing the gross income. This new subsection is in respect of the additional exemption for a dependent for a child who is pursuing a non-sponsored full-time undergraduate course at a recognized tertiary educational institution. The maximum deduction is Rs175,000 for each dependent where it is based on the amount of tuition fees and the child is studying in Mauritius at an institution recognized by the Tertiary Education Commission. Otherwise, the deduction is Rs135,000 and the tuition fee is not relevant. Where the child is studying at a recognized institution outside Mauritius, the deduction is Rs200,000. Though the deduction for a child studying outside Mauritius has increased, it may still be believed that it is not an adequate relief considering the total costs. The annual income of the individual and the number of years the deduction is claimed for the relevant dependent is no longer relevant. Relief for the amount invested in a rainwater system is allowed in addition to the IET, interest relief, relief for medical or health insurance premium, solar energy investment allowance and deduction for household employees. In the case of an independent couple, this relief can be shared equally or claimed by only one of the spouses. Any unrelieved amount can be carried forward and utilized against the net income for the succeeding years. The fact that any unutilized allowance can be carried forward for an indefinite period of time makes this allowance unique. In the case of a couple, a reliable forecast of the taxable income of the spouses should assist in determining whether the allowance should be divided equally or taken by one of the spouses only. The nature of the income of the individual is not relevant for the purposes of the allowance. The main changes relate to the conditions and the manner the income tax allowance is paid and are outlined below:
The law has also been amended so that the allowance is paid by the employer based on the information submitted for the purposes of the National Pensions Act; in fact it is not surprising to note that this amendment is deemed to have come into operation on 1 January 2018. The emphasis is on the level of the monthly recurrent earnings as an individual with monthly earnings of Rs20,000 is not eligible for the allowance and interest and dividends are not relevant for the purpose of the Rs390,000 threshold. This amendment seeks to correct an anomaly in the law to ensure that interest relief also applies to Islamic financial arrangements. The maximum exempt portion of the aggregate of termination payments like severance allowance, retiring allowance and negotiated compensation under section 42 of the Employment Rights Act, has been increased from Rs2million to Rs2.5million. This is the only amendment to the ITA 1995 that is effective on the same day as the day of the Budget 2018/2019. Interest on sukuks quoted on the Stock Exchange would be totally exempt from income tax for individuals and nonresident companies. This amendment is a positive development, though it was not specifically required in view of section 151A of the ITA 1995 on Islamic financing arrangement. This is a measure that discriminates between resident and nonresidents recipients of rental income. Appropriate internal measures should be taken by tenants to identify the tax residence status of the recipients. The interaction of this amendment with the new section 4(2) of the ITA 1995 should be clarified. The statement of assets and liabilities shall not be required to be submitted where the individual has submitted his annual tax return for the last five income years. This measure is also a positive development. The condition on the submission of the tax return implies that resident individuals who are Mauritian citizens would be encouraged to submit a tax return even though the submission of an annual tax return is not mandatory. Document ID: 2018-6020 | ||||||||||||||||||||||||||||||||||||||||||||
