“We have made giant strides in improving efficiency in tax administration over the years”

Interview – Sudhamo Lal, Director General – MRA —

‘The MRA is amongst the tax administrations with the lowest cost of collection in the Sub-Saharan Africa’

Tax collections have kept pace with ever larger government spending during Sudhamo Lal’s stewardship of the MRA, thus minimizing the otherwise inevitable budget deficits and rising public indebtedness that would have otherwise taken place. He has familiarized himself deeply with the mindset of our taxpayers over time and made “customer-friendly” the tax payment system and modernized it with the strong cooperation of the Board and personnel of the MRA.

He is optimistic the MRA will do its own to ensure a fair contribution by all to the national tax effort. Aware of the not-so-favourable public perception of taxes generally, he soberly quotes Edmund Burke in this enlightening interview to Mauritius Times this week: “To tax and to please, no more than to love and to be wise, is not given to men.” Read on…

* If we look at data of recent years, Mauritius has collected total fiscal revenues which represent about 20% of the country’s GDP. Not bad, one would say, compared with advanced countries like France, Ireland and Australia which collect about the same percentage of GDP as taxes, or even better than countries like Germany and Switzerland which raise 10 to 11% of GDP in taxes. Yet, there are some international lobbies which keep calling us a ‘tax haven’. Please tell us how rigorously we administer our tax system to prove that Mauritius should not qualify to be called a “tax haven”?

Over the past two decades, the OECD has been on the forefront in respect of the tax haven issue. Initially, it had defined a tax haven as one with no or nominal tax rates, lack of transparency and exchange of information. Subsequently, OECD dropped the tax rate criteria as the determination of a tax rate is an issue of fiscal sovereignty – every country has the right to determine its tax rate.

Thus, the two main OECD criteria for a tax haven remains the lack of transparency and exchange of information. On these two criteria, we have already been assessed by the OECD and Mauritius is on the OECD ‘White List’. The Peer Review exercise of the OECD Global Forum on Transparency and Exchange of Information has rated Mauritius as a “largely compliant” jurisdiction. A few days back, Mauritius joined the Multilateral Convention for Mutual Administrative Assistance in Tax Matters for automatic exchange of financial information thus reinforcing our position as a transparent reputable international financial centre.

However, it appears that some international lobbies keep calling us a tax haven with regard to our international financial centre and the tax rate payable by the global business companies operating therein. My answer to these lobbies is that we are a low tax jurisdiction with a uniform tax rate of 15% for personal income tax, corporate income tax and VAT. Global companies are subject to tax at the statutory 15% income tax rate and benefit from foreign tax credit as they operate internationally and are often subject to tax overseas. These companies are registered with the MRA, pay their taxes as applicable and are subject to MRA audit in the same way as every company operating locally.

 

* Since the MRA was set up in 2004, there has been a tendency for the share of tax collections to GDP to maintain itself. In the light of your long experience in tax administration, could you tell us what other measures could be contemplated to keep financing from tax collections ever increasing public spending?

Since its inception in 2006, the MRA has initiated a wide range of tax administration reforms to increase efficiency in tax collections. We have brought many non-filers into the tax net, raised billions of rupees of assessments on those who under-declare their income/turnover and improved our systems and processes to capture, retrieve and utilise load of third party information to checkmate tax compliance.

Our future plan of action is basically geared towards maximising the potential of information technology to enhance revenue collections. As you may be aware, we introduced the VAT Lucky Draw Scheme (VLDS) last year essentially to enforce issuance of VAT receipts and checkmate tax compliance. The invoice details received through the VLDS (sms, website, etc) have become an essential component of our tax compliance mechanism. We plan to introduce electronic fiscal devices in restaurants and supermarkets to receive information on sales effected almost outright at our premises through online connectivity. In the gaming industry, the strategy is to set up a Central Electronic Monitoring System that will ensure continuous on-line recording, monitoring and control of all gambling activities.

* We’ve seen a general slowdown in international economic growth and this is mirrored in our own economic performance. In the face of a slackening of economic growth, like what is being foreseen currently by the World Bank for our country, what are the strings you at the MRA could pull to help keep government still manage their deficits prudently without landing the country into greater indebtedness?

As I said earlier, we have made giant strides in improving efficiency in tax administration over the years. But clearly there is scope for enhancing the administration of taxes further and every year we do come up with our action plan to make this happen. On 1 July 2015, I shared with the press some of our new initiatives. However, tax collections depend to a large extent on the state of affairs in the country as well. If there is a boost in economic activity, individuals start earning more income, companies generate higher turnover and more profits, consumption is on the rise, it is crystal clear that revenue collections from income tax, VAT and excises will follow suit. Thus, to answer to your question, Yes, improvements in tax efficiency can generate more revenue, especially over time, but a high economic growth rate is a pre-requisite for generating additional revenue outright that can allow Government to manage its deficits prudently and prevent the country from landing into indebtedness that are not sustainable .

* We’ve seen that, over the years, the contribution of items like VAT and Excise to total revenue have kept increasing whereas corporate and personal taxes have not been as progressive. Customs revenues at only Rs 1.4 billion for 2013 (2.3% of the total) no longer support as much as they did in the past. Does that mean that in coming years this trend to rely on indirect taxes will persist or is there a possibility of shifting the burden to direct tax payers in a spirit of fairness?

The state of collections of customs duties is explained by the fact that almost 88% of our tariff lines are zero and the rates do not exceed a maximum of 30%.

As regard, personal income taxes, I beg to differ on this point as my figures show that during the last two calendar years it has increased by 17% and 14% respectively which is a remarkable achievement taking into consideration the low growth rates. I do, however, agree that corporate income tax has increased by 5%and 3% only recently, but if the growth rate increases beyond say 5%, there should be a more discernible increase in corporate tax collections.

Regarding the issue of fairness, let me point out that although we have a single income tax rate of 15%, the system remains progressive. For example, an individual with a dependent spouse and two children can earn up to Rs 38,000 a month without paying income tax. 70% of our personal income tax collections come from individuals earning more than Rs 77,000 monthly i.e. Rs 1 million annually.

* You collected a total of Rs 61.7 billion in 2013 and possibly as much in 2014. Do you have the feeling that your staff may find it difficult to stretch up this figure by too much? Surely, the economic base has to be grown for more revenues to be collected and there’s a limit as to how much the MRA can do by raising arrears of revenues, bringing to book evaders and under-declarers?

In 2014, our collections were to then tune of Rs 63.98 billion which represents an increase of 4% over the preceding year. There is potential for increasing revenue collections through tax administration efficiency but the scope for raising tax collections through high economic growth rate is much wider and deeper.

* We see that there are several developing countries, notably in Africa and elsewhere where the rate of tax collection is quite low (10 to 15% of GDP). A tax system has to be fair. By keeping our own revenue collection at 20%+, are we sure that the tax burden is being fairly shared across the spectrum or are evaders still getting away by employing clever tactics and thus shifting the burden on the more honest taxpayers?

In fact, a high tax rate may be the reason for a low tax to GDP ratio as it may encourage tax evasion, especially if the tax administration system is weak. When the tax rate is as low as 15% as in Mauritius, the incentive to evade tax is less and hence voluntary compliance is higher.

You may rest assured that the MRA is taking to task taxpayers who do not fulfil their tax obligations. For example, in 2014, we have raised 5,667 tax assessments on taxpayers who did not appear to pay the right amount of tax for an amount of Rs 3,278 million.

* More than two-thirds of revenue was collected electronically by the MRA in 2013. I believe this trend has been reinforced in 2014. Is this move to collect, store and retrieve data pertaining to taxation secure enough and there is no going back to the old paper standard with the tax office loading itself year after year with an ever bigger stock of paper files – and costs?

In 2013, we were collecting 68% of our receipts in electronic mode. This has increased further to 71% in 2014 as we widened the avenues for electronic payment, especially for personal income tax and small VAT taxpayers.

Our system for recording electronic returns and payment are safe and secure and our intention is to cater for additional electronic transactions in the years to come to save on costs and improve internal efficiency. Let me also tell you that we have already embarked on a project to make the MRA itself a paperless organisation and this is implemented in a phased manner.

* After some twists and turns, the tax on Corporate Social Responsibility has been changed again, hopefully to make enterprises more in tune with the environment (social and physical) on which they depend to earn their profits. Do you consider that our corporate sector is giving enough and fairly towards all to sustain the society on which it depends?

At the outset, let me tell you that there are very few countries which have introduced a Corporate Social Responsibility Levy. On this point, we are well ahead and the discussions I had with some of our African counterparts on study tour at the MRA is that they will recommend the introduction of this levy to their respective Governments.

The information I have is that around Rs 650 million is spent or earmarked for spending by profitable companies annually under the CSR scheme. This is a sizeable amount which if utilised judiciously can help the country in addressing some of the social issues such as housing, poverty, etc.

* Finally, how does our cost of tax administration compare with other countries? What explains the reduction the MRA as a corporation has achieved by bringing down its annual income deficit from Rs 49.8 million in 2012 to Rs 9.5 million in 2013?

The cost of collecting revenue is an internationally benchmarked indicator for gauging the efficiency of Revenue Authorities. It compares the administrative expenditure incurred by the Revenue Administration with the total tax revenue collected over the fiscal year. On average our cost of collection for the period 2010-2014 has been 1.85% and the MRA is amongst the tax administrations with the lowest cost of collection in the Sub-Saharan Africa.

The deficit of Rs 49.8 million for the year ended 31 December 2012 is mainly explained by a provision of Rs 43.4 million made for retirement benefit obligations based on actuarial valuation report submitted by our actuaries. In the following year, the provision has been reduced to Rs 11.7 million by the actuaries.

* How do things stand for 2015?

We have already completed the first six months of 2015 – i.e the fiscal year Jan-June 2015. As things stand, I believe that our primary target which is to collect some Rs 33 billion in that period will be met.

The MRA have some other challenges in the current fiscal year 1 July 15 -30 June 16 such as coping with submission of income tax returns in September/October 2015 i.e for the second time in 2015, ensuring the deregistration of thousands of VAT registered persons following the rise in the VAT registration threshold from Rs 4 million to Rs 6 million, facilitating the new simplified income tax and VAT system for SMEs and the associated education campaigns. We also have a list of some 85 projects/initiatives in our 2015/16 Action Plan which we intend to implement to facilitate taxpayers/stakeholders and for improving our internal efficiency.

* Seven years after the MRA was established, do you have the feeling that taxpayers are more “cheerful” to pay up their tax dues than in the times when taxes were perceived to be merely “repressive”?

There is a famous saying by Edmund Burke “To tax and to please, no more than to love and to be wise, is not given to men.” I do not feel that the MRA has made taxpayers more “cheerful” to pay up their taxes. But I do have the feeling that with the advent of the MRA, tax compliance has been made easier and cheaper. I will mention two major breakthroughs. First, with the e-filing & e-payment of income tax returns (95% in 2015), the long queues at the MRA Office is now something of the past. Second, all customs brokers now submit their bills of entry and supporting documents electronically, e-pay tax/duties and receive customs approval without even having to visit Customs premises.

In the recent months, the MRA has embarked on promoting a tax culture campaign in secondary schools which aim at educating students about the importance of paying taxes. I can only hope that in the years to come, our efforts in educating the taxpayers of tomorrow bears some fruits and there will be many more taxpayers who, as you say, will be more “cheerful” to pay their tax dues.

 

*  Published in print edition on 3 July 2015

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