Interview Sudhamo Lal – Director General MRA — “One of the core values of the MRA is ‘fairness’”

* ‘The flat 15% tax rate coupled with the abolition of the deduction/reliefs and the introduction of high income exemption thresholds has promoted greater income equality’

* ‘We consider the allegations about Mauritius as not being co-operative enough in matters of exchange of information in tax matters as grossly unfair’

 

The Mauritius Revenue Authority (MRA) has been here for a decade, operating under a semi-autonomous arrangement with an independent board. Taxation has a key role to play in the effective running of government business. But factors like corruption and administrative inefficiency can impair its real contribution to the balanced development of society, one in which taxpayers feel that they are being fairly treated and governments’ ever-increasing appetites for higher revenue collections are satisfied. Has the MRA achieved this kind of a balance? We asked Mr Sudhamo Lal, Director-General of the MRA, to share his views on how he has set himself out to achieve this balanced outcome.

Mauritius Times: The Mauritius Revenue Authority has earned praise from decision-makers for all that it has achieved during the last 10 years. How do we really measure the success of a revenue collection body?

 

Sudhamo Lal: There are many factors that we need to take into consideration when measuring the success or performance of a revenue authority. First, and foremost, a Revenue Authority exists to collect revenue for the State to finance its socio-economic objectives. Thus, whether it is able to achieve its revenue targets consistently over the years is an important indicator of its success or efficiency. The rate of compliance in respect of the different taxes is another determining criterion when gauging the efficiency of the Revenue Authority.

Overtime, the tendency worldwide is to view Revenue Authorities as service oriented organisations instead of merely revenue collecting agencies. Thus, the quality of services it provides to taxpayers has become an important indicator of the efficiency of a Revenue Authority and it encompasses both the way the Revenue Authority educates its taxpayers and facilitates their tax compliance. For those Revenue Authorities where Customs has been integrated within the organisational structure, the performance indicators with regard to trade facilitation are critical e.g. the import and export clearance time at Customs.

I must say that over the years, the MRA has achieved encouraging results in almost all these fronts and may be this explains the praise we have received from decision-makers.

* Tax collection by the MRA has steadily increased over the years to match up to ever increasing government spending. Would this have to do mostly with the coming into operation of a flat tax rate of 15%, thus effectively facilitating or encouraging compliance, or is it due to the fact that the Mauritian economy has grown and prospered and helped collect the increasing revenues?

Tax collections by any Revenue Authority depends primarily on the economic conditions, in particular, the economic growth rate. A boost in economic activities generates additional income flows which are subject to various taxes and thus bring additional tax revenue.

A low tax rate also encourages tax compliance as it reduces the incentive to evade tax. But, in my view, an effective and efficient tax administration is the most critical in raising optimal revenue collections and ensuring their sustainability over time. Efficient Revenue Authorities can raise maximum collections by facilitating those taxpayers who want to comply voluntarily with the tax laws and use enforcement actions against those who have decided not to comply.

* The flat tax rate policy of 15% has come in for some criticisms for being inherently regressive since all pay at the same rate, irrespective of huge income differentials. On top of that the IMF/World Bank have recently drawn attention to a possible shrinking of the middle class, which is getting poorer. Would you say, Mr Lal, that the tax burden in Mauritius is being unfairly shared and it might be responsible for accentuating inequalities?

This issue of a flat rate or a progressive rate of tax is a matter of policy which may be better addressed by the policy makers. Personally, I believe that it cannot be seen in isolation. Rather, it should be seen in conjunction with the inherent features of the tax system. For instance, prior to 2006 we had a progressive tax system with a top marginal rate of 30% but still many taxpayers in the high income group were paying little or no tax. The culprit was the tax system which allowed these rich individuals to maximise dozens of deductions and reliefs to reduce their chargeable income and pay tax at the lower rates.

An MRA study conducted at that time revealed that the introduction of the flat 15% tax rate coupled with the abolition of the deduction/reliefs and the introduction of high income exemption thresholds for all had in fact promoted greater income equality by removing the low income earners and part of the middle income earners from the tax net whilst raising tax collections from the high income group significantly.

Thus, to answer to your question, yes, a progressive tax system is an option to reduce income inequality and most of us have been taught about the benefits of such a system for years. But, there also appears to be an emerging consensus these days for keeping the tax system simple and manageable with a low flat tax rate and address the issue of income inequality outside the ambit of taxation e.g. by providing direct income support or direct subsidy to the needy through the redistribution of taxpayers’ money.

* What about the administrative cost of tax collection in Mauritius? How does it compare with other jurisdictions, and has it improved since the coming into operation of the MRA?

Our target has been to maintain the cost of collections as a percentage of revenue collected below 2% and this has been achieved for a number of years. The recent salary adjustment exercise and the introduction of refunds for sick leaves have slightly increased our costs of collections. But I can reassure you that the MRA’s cost of collections is still very competitive when compared with other jurisdictions.

* When we talk of compliance or non-compliance generally, we may presume the Mauritian taxpayer is not any different from what obtains elsewhere. But what seems to work best for the MRA as far as the Mauritian taxpayer is concerned: the carrot or the stick – or both at the same time?

I think that we cannot dissociate the carrot and the stick approach in our endeavour to raise tax compliance. At the MRA, the “carrot” to encourage voluntary tax compliance has been in the form of simplified returns, dedicated taxpayer education campaigns, taxpayer leaflets and e-payment facilities. For those who still choose not to comply, the “stick” is inevitable and it takes the form of assessment penalties which may rise up to 50% of the underdeclared amount, penalty for late payment of tax of 5% and interest rate of 0.5% per month.

Once an assessment has been confirmed, we have another arsenal of tools at our disposal to ensure that tax evaders settle their tax liability and it includes inter alia objections to departures, inscription on immovable properties, attachment of salaries or bank accounts.

* Certain tax authorities have taken the “stick” so fiercely, chasing taxpayers to extreme levels, that they have unwittingly also chased away investors and hurt the business climate. Would you say that the MRA bears in mind this potential risk of “going too far” against the contributor to revenues?

One of the core values of the MRA is “fairness”. Since last year, we have given firm instructions to all our audit officers to ensure that our tax claims are accompanied with detailed justifications and reasons. The MRA Act has even been amended to make this is a statutory requirement.

You may rest assured that the MRA does not work to drive away investors and hurt the business climate. In fact, it is the reverse which is true. Do you know that the World Bank Doing Business Survey has an “Ease of Paying Taxes” indicator which rates Mauritius at the 13th rank amongst nearly 200 countries? This world class ranking is attributable to the series of initiatives and projects that the MRA has implemented over the years to facilitate taxpayers.

* Our record as a country in terms of compliance with requests to report suspected misdealings by their nationals has come under attack from some foreign countries, in spite of Mauritius being rated as “largely compliant” by the OECD Global Forum for Exchange of Information in tax matters. Would you say that the “tax haven” tag attached to Mauritius is what a small jurisdiction like Mauritus should expect from Big Brother if only to distract international attention away from the latter’s own misdeeds and that, in the light of how actually the MRA responds to such requests, the accusation is grossly unfair?

At the MRA we consider the allegations about Mauritius as not being co-operative enough in matters of exchange of information in tax matters as grossly unfair. Do you know that since our inception in 2006, we have responded to around 1,000 requests for exchange of information from our foreign counterparts? Those people making these allegations, often on the basis of inadequate information, should take time to reflect on how a small jurisdiction like Mauritius with limited resources is coping with the ever increasing request for tax information.

At the MRA, we have had to undertake a major overhauling of our International Tax Unit, bring in additional human resources from our audit functions in order to meet the new requirements for exchange of information with other countries such as under FATCA or the forthcoming automatic information exchange agreements.

As you mentioned yourself, the OECD has rated us as a “largely compliant” jurisdiction after a thorough review of our systems and legislative framework. To achieve this status required bold and expeditious decision taking at various levels and amendments to several legislations.

At the MRA, I can assure you that all efforts are undertaken to share information on a timely basis with our foreign counterparts as we are committed to maintain the reputation of Mauritius as a compliant jurisdiction in terms of exchange of tax information and discourage international tax evasion.

* Despite all the efforts we’ve been putting in to keep our jurisdiction clean and abide by international standards, certain politicians in other countries keep making allegations in public that we would be favouring bypassing of rules relating to money laundering, avoidance of “round-tripping” and so forth. Will you dismiss such allegations as political ploys to remain popular or is there something we can rectify over here?

I would refrain from making observations about “money laundering” or “round tripping” as there are other regulatory bodies in Mauritius looking into these issues. But my little understanding of the situation is that we have done a lot over several years to address the concerns of all our foreign counterparts be it in terms of legislative amendments, amendments to application procedures for registration as a global business company, etc.

As regards the people making these allegations, may be it is time for them to reflect on some of the procedures, practices and the monitoring mechanism in their home country as well. For instance, if there are strict controls over transfer of money outside their country, how is it possible that their people are engaged in round tripping activities? Are there internal loopholes or deficiencies in their monitoring mechanism which need to be addressed in the first instance?

* To come back to the Authority’s sustained performance , would you say that the MRA’s organisational structure with, at its head, a foreign national, supported by an independent board sheltered from the ‘politics’ of the civil service, has contributed in a large measure to its success?

Definitely, the MRA organizational structure has a big role to play in the success of the organization. Upon its setting up in 2006, the MRA was exempted from the rigidities and bureaucratic procedures that existed in the public service. When you are given greater autonomy to recruit staff, to review your organigram as and when the need arise to adapt to changing conditions, to reward and recognize excellent performance and you have the full support of an autonomous Board which provides strategic direction rather than looking into the liability of individual taxpayers, the chances of success are indeed much higher.

Mauritius is a small country where almost everybody knows each other whether professionally or though family ties. In this sense, I believe that a foreign national has an advantage over local citizens since he is immune from such considerations and can operate with greater independence especially at a very sensitive organisation such as the MRA.

But as I have said time and again, the MRA is not one person. It is a group of 1,400 wise men and women working together towards a set of objectives. They have supported the organization all along – right from the major overhauling that took place in 2006 and until now. The contribution of our employees to the continued success of the organization has been exceptional.

* Many foreign nationals who had earlier been enlisted to lead some of our public institutions or particular departments within those institutions, have either left on a sad note or have not expressed interest to go beyond their initial posting. What does it take to make one’s posting (for a foreign national) effective and rewarding in the local context?

I cannot comment on the foreign nationals who have left the country after their initial posting as I do not have all the facts regarding their respective situation. But insofar as I am concerned, I have always believed that the eleven years of continuous service to the MRA and to the successive Governments is due to sheer hard work, dedication, professionalism and responsiveness which has been appreciated by the policy makers; both current and past.

We live in a dynamic world. As the CEO of any public organization who has to implement the policy decisions taken by different Governments, it is important that we are flexible and adapt ourselves to the changed environment, the modern thinking and the new economic strategies. Of course, it is also the duty of the CEO to caution policy makers about the undesired or unintended consequences of any policy proposals.

I consider that I have delivered on both fronts and been faithful throughout to my mission of continuously reforming and modernizing tax administration in Mauritius for the benefit of our stakeholders, be it, Government, taxpayers, operators in the Customs arena and the public at large. All these factors, I believe, explain my continued presence in Mauritius.

* Published in print edition on 15 July 2016

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