2009

BUDGET

22 May 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 bearone striking characteristic: Government forgoes revenue in several instances where this is felt to be an effective wayof helping industrial sectors and business enterprises. Thus, the tax bill for tourism and construction will be lighterby Rs 550 million, a number of SMEs will benefit from loan rescheduling, VAT will be refunded for constructionundertaken under programmes approved by the National Empowerment Foundation and travel tax to Rodrigues willbe suspended. This is why the Minister of Finance has been able to claim, rather proudly and with some sense ofsatisfaction, that “protecting people is not only about what we do but also and equally important about what we donot do”. But he has, in effect, also taken a number of steps in order to try and achieve the three priority objectiveswhich 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 investmentprogramme, poverty eradication and the maintenance of an expansionary fiscal and monetary policy.

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It is reassuring that the action plan and its constituent measures are temporary for, otherwise, they would eventuallyderail or destroy the economic reform started in 2006. Were it not for the exceptional recession presently threateningMauritius, 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 thenext 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 thatthe public purse will be called upon to finance further stimulus packages in neo-keynesian style. This is why it is ofparamount importance that the Rs 8.85 billion earmarked to be spent in the next 18 months be disbursed as envisagedand 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 recessionand of the financing of the stimulus packages. This has been proved wrong.

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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 profitson corporate social responsibility (CSR) activities or else transfer those funds to Government to be used in the fightagainst poverty. In this connection, it is regretted that firms will be restricted to supporting only CSR activities whichare approved by Government. The approval should, at least, be on an ex post, rather than an ex ante, basis: thatwill smack less of interventionism.

Solidarity

In a laudable gesture of solidarity, Ministers are being asked to forgo Rs.10,000 of their monthly remuneration untilDecember 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 beingmaintained 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 onthe assumption that the numerous support measures which have been announced – or repeated - are duly introducedand realised. Nor have social benefits been curtailed.

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The budget will eventually be judged in accordance with the extent to which its proposals are implemented. It hasbeen rightly presented as an action plan, not as a vision or a mission statement. The proof of the pudding will be inthe eating.

The biggest question mark is about the beginning of the end of the world recession, since this will have a significantbearing on the state and evolution of the economy of Mauritius. This is unfortunately beyond the control of the country.

Pierre DinanIndependent Consultant

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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.

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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.

HIGHLIGHTS OF FIVE PATH ACTION PLAN

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• “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). Investmentin planned projects in cane sector on behalf of planters. Dividends accruing on investments will be kept for smallplanters 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.

HIGHLIGHTS OF FIVE PATH ACTION PLAN

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• 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 andmedium 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 amountsgreater than USD 500,000.

• Amending legislation to prevent non citizens from acquiring residential properties outside the IRS and RES schemes without the required authorisation.

HIGHLIGHTS OF FIVE PATH ACTION PLAN

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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

HIGHLIGHTS OF FIVE PATH ACTION PLAN

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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

Path 3: Launching the largest investment programme in the history of Mauritius

New infrastructure projects

HIGHLIGHTS OF FIVE PATH ACTION PLAN

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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

HIGHLIGHTS OF FIVE PATH ACTION PLAN

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BUDGET

PUBLIC PRIVATE PARTNERSHIP PROJECTS Cost - Rs (Bn)

Tianli project 20

Highlands project – Modern town 100

Others 7

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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 writtenoff 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

HIGHLIGHTS OF FIVE PATH ACTION PLAN

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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.

HIGHLIGHTS OF FIVE PATH ACTION PLAN

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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.

FISCAL PROPOSALS

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Corporate Social Responsibility

• Profitable firms will be required to spend 2% of their profits on Corporate Social Responsibility schemes approvedby 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 and1.5% 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.

FISCAL PROPOSALS

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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.

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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.

FISCAL PROPOSALS

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BUDGET

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