“Mauritius has a lot to share with the outside world in terms of social welfare and economic justice in its tax system”

Encounter

Sudhamo Lal, Director-General of the MRA

* ‘Targeting political opponents are against our core values of integrity, fairness, transparency and accountability’

* ‘In the last financial year, we raised assessments of Rs 12 billion on non-compliant taxpayers which would relate to some Rs 40-50 billion of undisclosed income/turnover’

In this week’s Encounter, we spoke with Sudhamo Lal, the Director-General of the Mauritius Revenue Authority (MRA). Recently honoured as a Grand Officer of the Order of the Star and Key of the Indian Ocean (GOSK), Mr Lal’s leadership has been instrumental in transforming revenue administration in Mauritius. Under his watch, the MRA has achieved remarkable milestones in tax collection efficiency and has displayed adaptability in providing financial assistance during the Covid-19 pandemic. Mr Lal’s insights shed light on the MRA’s commitment to transparency, fairness, and innovation in tax administration.

* Beyond its primary function of tax administration and collection, the MRA has displayed adaptability by effectively disbursing various government allowances since the onset of the Covid pandemic. What factors do you think have contributed to the MRA’s proficiency in both domains?

Tax administration has been our main responsibility since the MRA was set up in July 2006. Our “proficiency” in tax administration, if I can use your own words, can be attributed to the systems and processes that have been put in place from 2006 onwards to change the face of tax administration in Mauritius, to putting the right persons in the right places to lead the tax administration reform and to MRA’s strategy of continuous innovation and digitalisation.

Regarding our “proficiency” in providing financial assistance, we have relied on those same factors which have contributed to the success of our tax collection strategy. Indeed, we have been able to respond to the call of Government during the Covid-19 pandemic and thereafter, based on the following key MRA attributes:

• an excellent IT infrastructure and digitalised systems and processes;
• a pool of high quality, flexible, adaptable IT and tax professionals;
• strong leadership, commitment and teamwork across the organisation;
• dedicated staff working for long and odd hours; and
• capacity to shift to the work from home mode at any point in time.

* As the Director-General of the MRA, could you please outline the measures being implemented to enhance transparency and accountability in tax administration?

I would say that there are very few organisations that are as transparent and accountable as the MRA. As members of the press may testify, we are always open and timely in attending to their queries, clarifications or request for assistance.

In our annual press conference we attempt to provide maximum information on our macro level performance, our Annual Report provides detailed information/analysis on our achievements, we regularly participate in radio/TV programmes and attend to all sorts of questions from the press and the public, we provide online guides/leaflets/explanatory videos on every new scheme or main tax measure introduced and we issue communiques in newspapers almost every week to update our stakeholders on issues that may be of interest to them. Our endeavour is to operate in a spirit of full transparency and accountability for the benefit of all our stakeholders.

I must also admit that as a public sector body, we are subject to in-depth scrutiny on our performance and operations. We spend time and resources in improving our operations following the annual audit exercise by the National Audit Office and subsequent meetings of the Public Accounts Committee, provide inputs in relation to Parliamentary Questions at the National Assembly, undergo periodic reviews by the OECD, IMF, etc.

So far, I believe that we have fared well in terms of our accountability and performance reviews. I would like to mention that the MRA is an ISO-Certified organisation which implies that all our processes are documented and reviewed every year by the Mauritius Standards Bureau to check compliance with the established standards.

Going forward, we are coming up with an innovative project known as the E-Tax Account which is a new electronic platform that will further enhance transparency and accountability. It will inter alia enable taxpayers and the MRA to exchange correspondence electronically, ensure that both parties can view all correspondences exchanged and provide for expeditious replies to queries through an automated monitoring process, etc.

* Addressing equity and fairness in tax administration across various income brackets and societal sectors is crucial. How do you balance the need for revenue generation with considerations of social welfare and economic justice in tax policy and administration?

The balancing of revenue generation with social welfare and economic justice is more of a matter of tax policy than tax administration and can better be replied by our policy makers from the Ministry of Finance.

However, I would like to say, on the basis of my personal experience as a tax professional examining tax systems for several decades, that Mauritius has a lot to share with the outside world in terms of social welfare and economic justice in its tax system.

Let me take the example of Value Added Tax. It is estimated that we are losing some Rs 10 billion of VAT revenues from various types of exemptions granted under the VAT Act. In fact, many experts claim that Mauritius has one of the longest list of exempt/zero-rated products in the world. But our policy makers have designed the VAT system in such a way to ensure that basic foodstuffs and other essential consumption products, medical services, educational products are outside the ambit of VAT to protect the poor, the vulnerable and the low income earners.

Similarly, in our income tax system, the ideal regime from a tax administration perspective may have been a single income exemption threshold for all taxpayers. But our policy makers have provided more equity and fairness in the income tax system with higher deductions based on the number of dependents the taxpayer has.

Furthermore, the very fact that taxpayers can deduct expenses, such as interest on housing loans or tertiary educational expenses for their child, from their tax returns reinforces the view that there are social considerations in the formulation of tax policy. But, these income tax deductions are expensive as we could have raised an additional Rs 1 billion if they were not granted.

* Can you provide details on any initiatives aimed at fostering fairness and inclusivity in the tax system, particularly for individuals with limited resources or income?

Individuals with limited resources or income are not concerned with income tax as they are not subject to such a tax. Regarding VAT, as I highlighted, there is a long list of essential products which are not Vatable, and this list is increasing every year. Let me disclose some figures which highlight the fairness and equity of our existing systems:

• Out of a working population of around 550,000 persons, only some 165,000 persons, that is, 30% pay income tax. We can safely say that the low-income earners and a major part of the middle-income earners are exempted from income tax;
• 80% of our personal income tax receipts is received from 36,000 taxpayers. Therefore, the rich pay most of the income taxes;
• Most of taxpayers in the low- and middle-income brackets, in addition to not paying income tax, also benefit from the monthly CSG Income Allowance from the MRA. For instance, those earning less than Rs 25,000 monthly receive Rs 2,000 as contribution and those earning between Rs 25,000 and Rs 50,000 earn Rs 1,000. There are approximately 340,000 beneficiaries of the CSG Income Allowance; and
• Some 4,000 additional workers, mostly part timers also receive the Negative Income Tax Allowance of a maximum of Rs 1,000 monthly.

I must also add that the MRA supports parents with young kids between 0 and 3 years to the tune of Rs 2,000 monthly through the CSG Child Allowance. This allowance is another safety net for low-income earners.

* The persistent challenge of wealthy individuals utilizing tax havens to shelter funds remains a concern globally. Are you satisfied with the level of international cooperation and collaboration in effectively addressing this issue?

Indeed, in the recent Global Tax Evasion Report 2024 of the EUTAX Observatory, mention is made that “global billionaires have effective tax rates equivalent to 0% to 0.5% of their wealth, due to the frequent use of shell companies to avoid income taxation”. Hence, the Noble Prize Winner Joseph Stiglitz mentions in his Foreword to that Report that “billionaires may not yet have achieved immortality, but they have certainly become more agile at avoiding the taxman”.

International tax evasion by the wealthy individuals is a universal concern which requires the cooperation of each and every country. You need not be surprised to learn that taxation of the global billionaires was on the agenda for discussion during the last month G-20 Ministers meeting.

I personally believe that international cooperation through the Automatic Exchange of Information (AEOI) has been the real breakthrough in the fight against tax evasion by wealthy individuals. Today, 126 countries, including Mauritius, have committed to AEOI. Going by latest statistics in the Global Tax Evasion Report 2024, offshore tax evasion has declined by a factor of about three in less than 10 years and there is, therefore, ground to be satisfied. However, this does not imply that we should rest on our laurels. Instead, the global efforts to fight international tax evasion must be ongoing.

* Regarding the significant deposits and investments made by Mauritians abroad – more than Rs100 billion, it would seem -, have investigations been conducted by the MRA to determine any potential tax evasion, such as undeclared income or assets?

The MRA, after the end of each financial year, receives a lot of information from third party sources locally such as purchase of property, motor vehicles, contract for goods and services, deposits in bank accounts, etc.

We also receive bank account information on residents from foreign competent authorities. This information is key for the MRA to select cases for examination on a risk based approach and therefore improving tax compliance.

I must emphasise that third party data – both local and overseas – has enabled the MRA to uncover a number of tax evasion cases. In the last financial year, we raised assessments of Rs 12 billion on non-compliant taxpayers which would relate to some Rs 40-50 billion of undisclosed income/turnover.

* What policy measures or regulations do you suggest to discourage the affluent from utilizing tax havens and encourage domestic investment?

Regarding the transfer of money overseas to tax havens, I think that the OECD has come a long way to address the same, particularly, through the Common Reporting Standards which requires jurisdictions to share automatically bank information with the competent revenue authority where the depositor of the funds resides.

Given the extent of the work of the OECD and its implications, including the resources which each jurisdiction has to devote to comply with the OECD requirements, I would not suggest any further policy measures or recommendations for the time being.

However, there are some proposals which are being considered at international level such as introducing a new global minimum tax for the world’s billionaires equal to 2% of their wealth, institute mechanisms to tax wealthy people who have been long-term residents in a country and choose to move to a low-tax country and creation of a Global Asset Registry to better fight tax evasion.

As regards policy measures to encourage domestic investment, I believe that the focus should be on non-tax incentives. In fact, there is evidence that tax is not a major consideration for investment when compared to other more important factors such as political stability, infrastructure, cost of electricity, connectivity, time to obtain licences and permits, etc.

* There’s always the persistent concern about institutions being manipulated to target political opponents of the regime. Allegations of such actions have been made against the MRA. How do you address these accusations?

At the MRA we are committed to our core values of integrity, fairness, transparency and accountability and the concerns you have raised are against these values.

In any case, whatever decisions the MRA takes in relation to a taxpayer is not an end in itself. Any such MRA decision can be contested at the level of other independent authorities such as the Assessment Review Committee, the Supreme Court or the Privy Council.

There is no point for the MRA to raise fictitious assessments when appeals against these assessments will be allowed by the appellate bodies resulting into the reputation and credibility of the MRA being adversely impacted.

* Looking forward, what are the MRA’s priorities and strategies for effectively tackling emerging challenges in tax administration and enforcement?

At the MRA we are always looking for opportunities and strategies to enhance tax compliance. In this digital world, there is potential for expanding and improving the use of data, data analytics, artificial intelligence, machine learning and social media information to detect non-compliance, illicit activities and improve customer service. To this end, we have dedicated officers browsing the internet daily to track informal sector operators. We have also recruited Assistant Data Scientists in our Tax Risk Management Unit (TRMU) to tap the new potential of data analytics.

I have mentioned the E-Tax Account for a revolutionary electronic exchange of correspondence and data with taxpayers. We are also working on a debt recovery software module that will enhance our capacity to recover tax debts over time. Similarly, our Central Electronic Monitoring System, which is under implementation will ensure a real time monitoring of bets in the gambling sector and is expected to assist the MRA in tackling tax evasion in the sector.

Over the longer term we will have to work hand in hand with the Government to discuss policy changes that will ensure that foreign suppliers do not provide services to our citizens VAT-free when our local traders have to charge VAT on these same services. Similarly, a move to a digital and cashless economy will help to address certain tax evasion issues. Some countries are already ahead of us in using taxation to promote a cashless economy and the challenge for us will be to convince our policy makers to move in this direction in a phased manner.

In the field of tax and customs administration, there are always challenging times ahead. As a revenue authority, we should always endeavour to come up with the right strategies and tools that will ensure that we tackle these challenges and continue to make great strides forward.

Mauritius Times ePaper Friday 17 May 2024