Of NRPT and Witch Doctors

By TD Fuego 

“You may fool all of the people some of the time; you can even fool some of the people all of the time; but you cannot fool all of the people all of the time.”
— Abraham Lincoln

There is now widespread consensus that, right from the outset in June 2006, the Sithanen budgets have done everything to favour the rich and hammer the poor; and none more so than the poor middle class taxpayers. What still baffles some of us is why it took a whole five years for some of the top people to realize the havoc being wreaked by our erstwhile Finance Minister (FM), whilst the masses looked on, as if mesmerized by some potent witchcraft.

First, no sooner installed into office, he proceeded to approve IRS after IRS, making it even easier than the MMM-MSM government (2000-05) for the rich land owners to convert marginal land into fantastic money spinners. His excuse was FDI. In fact, only Rs 20m of this so-called FDI is actually invested in building an IRS villa. The balance — Rs80mplus of pure profit — is shadow FDI, to be found only in the statistics of the MoF and likely to remain offshore forever. Why would anyone wish to invest his FOREX in a local deposit account when he can earn much more on foreign government bonds and other assets?

Second, he proceeded to reduce corporate tax by a massive 50 percent from 30 to 15 percent, a reduction that only benefits the biggest shareholders of the largest companies in the land. This is equivalent to a 21 percent raise in their income. Twenty-one percent without budging a finger whilst the rest of us had to be content with a COLA not exceeding the rate of inflation of around 5%.

But, someone had to pay for this largesse and make up for the massive drop in revenue and the hammer fell with a loud thud on the personal taxpayers. At a stroke, the FM abolished all previous tax allowances, which drastically reduced their disposable income and their ability to meet their obligations. It has been calculated that, prior to the changes, a married man could earn up to Rs 1,100k tax free compared to Rs 350k now (vide MT 30-Apr-10). And, provocatively rubbing the salt in the gaping wound he had inflicted, the good Doctor introduced a new tax on their property and interest earned on their savings.

The Promise

Five years on, the middle classes are still reeling under the crushing weight of these murderous measures whilst the rich are laughing and singing and no doubt dancing all the way to the bank, some to the Euro-zone. Never in the realm of fiscal policy has such dastardly deeds been perpetrated on the middle classes, the backbone of the economy. But at last, after five long and painful years, there is a glimmer of hope at the end of the long, dark tunnel.

Following the signal given by the PM during the election campaign in May this year, FM Jugnauth has promised that he will abolish the infamous NRPT and the tax on interest. However, whilst these measures will no doubt be welcome with some relief by those most affected, they simply won’t go anywhere near restoring the purchasing power they have lost as a result of the callous changes wrought by his predecessor.

As a minimum and in the name of justice and equity, common sense tells us that we must reinstate the incentives that once impelled people to contract bank loans to buy/build their own homes, to save for later life and to educate their children. Otherwise, contrary to the vision of the PM, we run the risk of becoming a nation of assistés living in Firinga type cité housing estates and relying on government handouts for all our needs. From there, it is but a short step downhill towards dark despair, irredeemable loss of self-esteem and a myriad of social evils too gruesome to contemplate.

Housing Loans/Savings

The most important item has to be the relief on housing loans. Even a fresher in Sociology knows that owning a home is much, yes, much more than a matter of owning a structure made of bricks and mortar, providing shelter to the owner and his family. House ownership conveys upon the individual a stake in society, which makes him more respectful and caring for his environment. In contrast, public-provided housing estates are notorious breeding grounds for acts of extreme vandalism and vice rings. Examples abound the world over.

Next, we must encourage people to save for their future. It is a well documented fact that the national savings rate has been declining for some years now, hitting a low of 10 percent of GDP. Apart from empowering people to look after themselves better in life, economists tell us that there exists a close correlation between the saving rate of a nation and the rate of investment in the economy. Therefore, it is in all our interest that we restore all previous allowances that once encouraged people to save, save and save.


Many a personal experience also tells us that the only way out of poverty is through education. Even our illiterate parents understood this simple fact and went through some terrible hardships to provide us with the key to knowledge and prosperity. It is today acknowledged by all savvy leaders including the PM, which is why government spends some Rs 10bn on Education and has ambitions to endow at least one graduate per household.

All very commendable stuff. But, more, much more needs to be done. As the country moves on towards more sophisticated industries and service orientated sectors, we will need more and better educated people to make up the productive labour force of tomorrow. We need, therefore, to motivate youngsters to embrace tertiary education and post-graduate studies in sufficient numbers. This may involve giving tax breaks on university fees as well as student loans.

Of course, the above wish list does not pretend to be all-inclusive. However, the population would greatly welcome a return to a (previous) tax regime for starters. It is vital that people are once more given the incentive to own homes, to save for old age and to invest in the education of our children. Indeed, in our future as a nation!

As for the fall in income, much of it may be made up by simply cutting out the waste highlighted in the Auditor General’s report. All Rs 40bn of it!

* Published in print edition on 6 August 2010

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