Sudhamo Lal, Director General – MRA
« The track against tax evasion is a never-ending process…
I do not recall any tax administration that can boast of having “taken in” all the tax avoiders »
« MRA’s cost of collection for the year 2013 was 1.83% of the revenue it collects. This compares favourably with many other revenue authorities… »
In 2006, all public revenue administration was integrated into a single body, the Mauritius Revenue Authority.
Revenue collections have shown marked improvement from year to year since the establishment of the MRA, despite various exemptions and extensive zero-rating of the bulk of Customs tariffs and flat-lining of direct personal and corporate tax at 15% and maintaining zero-rating on capital gains over most of this period. The question is to what extent can tax collections keep growing to meet the ever-increasing scale of public expenditures? The question also is whether the current tax system is overall fair and progressive.
Mr Sudamo Lal, Director-General of the MRA, sets out the progress made since the establishment of the MRA, taking care not to make ingress into fiscal policy-making, but all the same pointing out how efficient tax administration and revenue collection are helping Government meet its socio-economic goals in all fairness to taxpayers who do not abscond from settling their tax dues.
Mauritius Times: Tax and non-tax revenue have buoyed up government revenues for the last several years. This is in contrast with the years when we had a series of budget deficits, forcing us to have recourse to external borrowings to meet essential government expenditures. What are the factors to which you would attribute the sustained growth of government revenues these past years?
Sudhamo Lal: The sustained growth in tax revenue over the past 8 years can be attributed to the tax policy, tax process and tax administration reforms initiated in 2006 and consolidated in subsequent years.
The tax administration reforms aimed at generating efficiency gains in revenue administration through the consolidation of the various revenue departments into an integrated revenue authority – the MRA. The efficiency gains from the setting up of the MRA are evidenced inter alia by the sharp increase in assessments raised, recovery of tax arrears and ultimately revenues.
The tax policy reforms also aimed at simplifying the tax system by consolidating various deductions into a single exemption threshold, overhauling the complex system of exemptions and introducing a low income tax rate of 15% for individuals and companies.
The tax process reforms included the introduction of cumulative PAYE, tax deduction at source on various types of payments, initiatives for e-filing and e-payment of tax, introduction of tax incentives schemes for better tax compliance and mopping up tax arrears, expeditious issue of income tax & VAT refunds, tariff rulings, tax residence certificates and reduced dwell time for cargo.
* How does the cost of collecting tax today by the MRA compare with the earlier set-up which comprised of several standalone collecting departments, notably for income tax, sales tax, customs and excise duties, etc?
In the pre-MRA era, the various revenue departments such as Income Tax, VAT and Customs & Excise were operating in isolation with their separate technical staff as well as administration staff such as finance, human resources, procurement, etc. There was clearly a duplication of resources whilst information-sharing between departments was very limited.
With the coming into operation of the MRA, we have consolidated the technical staffs into compliance departments where they undertake integrated tax audits of taxpayers i.e. income tax, PAYE & VAT audit of the same taxpayer for greater efficiency. Similarly, the administration staff have been regrouped into two dedicated departments namely Finance & Administration and Human Resources serving the whole of the MRA. Thus, in the pre-MRA era, we were employing 1,570 employees in various revenue departments. Shortly after the introduction of the MRA in July 2006, the number of employees had fallen to 1,196. In 2014, after the recruitment of several batches of technical staff, MRA staffing stands at 1,467, i.e. still lower than the pre-MRA era.
MRA’s cost of collection for the year 2013 was 1.83% of the revenue it collects. This compares favourably with many other revenue authorities and our target is to maintain the cost of collections below 2%.
* Since, other than efficiency of the revenue collection process, the amount of public revenues collected varies with the growth of GDP, what are the areas you would think could be incentivised from a tax angle in order to contribute eventually to higher public revenues?
The MRA is basically concerned with collecting optimal revenue on the basis of the existing tax system. Our objective is to continuously improve our efficiency in tax administration to generate more revenue for Government. Raising more revenue, other than through enhanced efficiency of the revenue collection process, is a tax policy issue which rests with the Ministry of Finance.
There are various tax policy options that could be considered to increase public revenues such as revisiting those types of income/goods that are currently exempt from income tax or VAT, promoting new sectors that would generate additional income for the country, generate more direct and indirect jobs and ultimately contribute to higher tax revenues. It is also a known fact that a large chunk of corporate tax and VAT receipts come from a few sectors only. Targeted economic policies to boost these particular sectors may yield substantial dividends in terms of revenue collected.
* Is there a limit to the extent government can go on increasing tax revenues from year to year? Which policies can the government pursue to make for incremental revenue growth but, at the same time, bring about a better sharing of the tax burden?
The extent of the increase in tax revenues will be limited by two key factors namely the economic growth rate and the efficiency in tax collections. At the level of the MRA, every year, we try to come up with new initiatives and projects aimed at improving our effectiveness and efficiency in tax collections. However, we are aware that over time as we pursue our enhancement in tax administration, the returns will be much lower than compared to the initial years of tax administration reforms – the so-called “diminishing returns” will crop in.
In Mauritius, a person without a dependent should earn more than Rs 21,000 a month to pay tax. A person with three dependents must earn at least Rs 37,000 monthly to be taxable. Thus, by restricting income tax only to middle and high-income earners, Government is already ensuring that those who have the means are sharing the tax burden.
* Generally, many taxpayers have a negative attitude to paying up taxes and they try to avoid paying up taxes. What are the efforts the fiscal authorities can or should make in order not to project a negative image of tax efforts to be made by individuals and corporations?
Indeed, when the times come for paying taxes many people find it hard to put their hands into their pockets. But at the MRA, we do recognise that many people are paying their fair share of taxes and need to be encouraged. This is why we have introduced lottery draws for those who file their returns electronically, come up this year with a VAT Lucky Draw Scheme for those who pay their fair share of VAT and claim a receipt for the same. We have created a DVD in-house to show to taxpayers how the tax they have paid is being used to promote the welfare state. We are also liaising with Government for a billboard to be affixed at all public infrastructure projects with the quote “Your Taxes at Work” to show how tax proceeds are being put to productive use. Finally, the MRA is contemplating the introduction of a taxpayer’s week whereby inter alia compliant taxpayers will be rewarded.
I must also mention that compliant taxpayers should take comfort from the fact that the MRA is taking to task those taxpayers who are evading payment of taxes. They are being subject to tax audits, assessments are being raised to recoup the tax due together with penalties and interest for failure to settle tax dues. We are also prosecuting taxpayers to show our firm intention to track down tax evasion.
* You recently launched a campaign to ensure that consumers should insist on getting receipts for their VAT payments on purchases made, which seems to indicate that you have views that all points of sale are not being honest. Can it be said that there is a full commitment on the part of the MRA as a whole to enforce the efficiency with which our tax collection is proceeded with?
Obviously, the launching of the VAT receipt campaign in 2013 and the VAT Lucky Draw Scheme in February 2014 demonstrate our full commitment to take to task those VAT-registered persons who are not issuing VAT receipts and not accounting for these sales in their official records and their VAT returns. I must say that we have already received several thousands of VAT receipts through SMS and the MRA website giving details of purchases made at specific VAT-registered businesses, the date when these sales were effected and the amount of VAT paid. The information gathered will be used when our officers undertake VAT audit at these business premises to checkmate whether these sales have been accounted for in the books.
On this point, I must candidly say that non-compliant VAT-registered persons cannot plead ignorance. We have written to all VAT-registered persons prior to the launch of the VAT Lucky Draw Scheme to remind them of their obligations under the VAT Act to issue receipts. We will take firm actions against non-compliant VAT-registered persons who are depriving the State of financial resources it needs to meet its socio-economic development objectives. We have also set up a dedicated Unit at the MRA to make surprise visits to VAT-registered businesses to verify issuance of these receipts.
* Does the MRA target tax avoiders in a bid to increase revenue or rather to bring about a greater equitableness among taxpayers?
As the body responsible for collecting tax revenue on behalf of Government, our key objective is to promote voluntary tax compliance. As I said earlier, the majority of taxpayers do pay their taxes. For those who have chosen not to comply, we take tax enforcement action against them by raising tax assessments in respect of the amount of tax unpaid together with interest due as well as penalties for failure to comply with the tax laws. Our actions inevitably bring greater equity amongst taxpayers and give comfort to law-abiding taxpayers.
By raising tax assessments on non-compliant taxpayers, we do generate substantial one-off revenues from them relating to several years of unpaid/under-declared tax. However, our expectations are that these assessments will act as a deterrent against future tax evasion i.e. there will be greater voluntary tax compliance. Thus, to answer your question, by raising assessments on non-compliant taxpayers, we aim to bring both greater equity amongst taxpayers and increased tax revenue.
* Once tax avoiders have been taken in, you will have to look for new sources to fill up the ever-increasing demands of government for funds to pay up for growing public expenses. Do you have other strategies to go on increasing the amount of revenues collected?
The track against tax evasion is a never-ending process. I do not recall any tax administration that can boast of having “taken in” all the tax avoiders. Every day new schemes are being devised to avoid payment of tax and we, tax administrators, face the delicate task of unveiling these new schemes/strategies. The MRA will be releasing its Corporate Plan for the period 2014-16 shortly where the various strategies to make tax administration even better have been laid down.
* With a fairly sizeable part of our tax collections coming from indirect taxes which are perceived as regressive, it being given that they are levied ad valorem, irrespective of income and wealth levels of taxpayers, would you consider our tax system to be overall fair?
The debate on the appropriate mix of direct and indirect taxes has been ongoing for years and there is no consensus regarding the same. The part of our tax collections that should come from direct or indirect tax is a tax policy issue for Government to consider based on its political orientation.
On the issue of progressive and regressive taxes, I must point out that the contemporary thinking of indirect taxes, such as VAT, being regressive is now evolving. Some recent studies on VAT incidence conclude that they are less regressive than previously thought. VAT can even be mildly progressive in the sense that it accounts for a larger share of total expenditures for the richest group than for the lowest group in terms of household expenditures.
In an IMF working paper on “Inclusive Growth and incidence of fiscal policy in Mauritius” released in 2013, Messrs David and Petri even concluded that VAT is relatively progressive in Mauritius compared to other developing countries. They mentioned that these results are arguably due to the fact that several food items that are disproportionately consumed by the poorest segments of the population are not subject to VAT.
* Each year, the Director of Audit comes up with his Report in which he points a finger to waste of public resources, a good part of which is collected by way of revenues by the MRA. Does the MRA feel frustrated at this state of affairs on the spending side of public funds?
As I said earlier, our mandate at the MRA is to collect the optimal amount of revenue for Government to finance its socio-economic commitments. The spending of this amount falls beyond the ambit of the MRA. However, personally, I believe that the appropriate systems of check, balances and controls are in place to ensure a judicious spending of tax collections. For instance, the very fact that the Director of Audit is disclosing potential wastage of public resources is an indication that the reporting system is working and that there is scope for taking remedial action where needs be.
* A case has recently come out in public whereby goods kept in the Customs area were squirrelled away without payment of Customs dues, in fact being stolen away from custody. What are the implications of such a theft and its distribution among users both from a tax point of view and from the security angle of the port area where all such goods are kept in custody before duty clearance?
I do not consider it fit to make any specific comments on this particular case which is under police investigations.
All goods which are landed in Mauritius and which will eventually be re-exported to another port are cleared under the transhipment procedure. A bill of entry is submitted to MRA Customs in respect of the goods. All transhipment goods are landed and kept in the Port Area and any person who without prior authorisation of the Director-General, MRA attempts to take out of Customs control any goods entered for transhipment shall commit an offence.
Whenever goods which were intended for re-exports find their way illegally (e.g. through theft) into the domestic market, there can be tax evasion, non-compliance with phyto-sanitary requirements and unfair competition. Customs duties may be payable, although to be very frank, most imported goods are exempt from Customs duties – 88% of our tariff lines are zero. As regard value added tax, it is also payable at importation except if the VAT Act specifically provides for exemptions. Food items such as pork, beef, chicken, fish and meat are not subject to VAT. The recipients of stolen goods tend to avoid including the same in their turnover, thereby resulting into further evasion of VAT as well as income tax.
Given the various implications of transhipment goods being stolen and sold on the local market, we have decided to tighten customs control in the port area in terms of human resources deployed and use of technology for greater security.
* We’ve been having extensive discussions with India on the status of the India-Mauritius Double Taxation Avoidance Agreement. The same situation could crop up in the case of tax treaties with other countries. What are the MRA’s ideas on sorting out this long-standing imbroglio?
I do understand that the issue of the DTAA with India is being taken up at the highest level. The MRA has a representative on the Joint Working Group with India and we are giving maximum assistance to our Government to find a suitable solution to both parties. We are also ensuring that exchange of information between Mauritius and India are carried out smoothly and to the satisfaction of our Indian counterparts.
* Published in print edition on 18 April 2014