The updated EU list: Mauritius stuck in greylist

Economic Outlook

The Mauritian authorities are thus warned that bogus and too-clever-by-half schemes will not carry the day in Brussels

By Rattan Khushiram

The European Union (EU) announced a revised blacklist of 15 tax havens (uncooperative jurisdictions) on 12 March 2019. The blacklist originally issued in December 2017 numbered 17 countries, which was reduced to only 5 by end 2018. Among 10 new additions, the UAE (Dubai and others) is back on the blacklist, which should be reassuring to those who spent considerable efforts there to finance the Heritage City Project. Equally comforting to those who instructed a state-owned bank to lend millions of dollars to an absconding borrower in Dubai.

Mauritius again avoided being blacklisted by taking further commitments to reform its domestic tax regime by end 2019, and remove all preferential tax measures that are considered harmful by the EU. A new EU blacklist will be produced in early 2020. However, Mauritius remains stuck on the watchlist, or “greylist” of 34 countries – a disastrous result that reflects the abysmal ineptitude of our policy makers in responding to EU concerns about our offshore tax regime. A notable inclusion in the greylist is Bahamas, well-known to us as the seat of the holding company of the BAI group. The bunch of blockheads who are responsible for this debacle should be excoriated for jeopardizing the growth prospects of our financial centre.

Of the 55 countries on the greylist in Dec 2017, including 8 hurricane-hit Caribbean islands, 10 countries failed to adhere to their commitments and were added to the blacklist, while 12 countries managed to get off the blacklist. Remarkably, 25 countries graduated from the greylist, including Jersey, Guernsey, the Isle of Man, Hong Kong, Fiji, Jamaica, and Malaysia to join the ranks of the white-listed jurisdictions like Singapore. These strong competitor countries will eat our lunch, while Mauritius remains confined to the greylist. It is shocking to note that even 6 blacklisted countries in 2017, including Tunisia, Grenada and Panama, succeeded in enhancing their status fully to the white list.

In what appears to be a note of warning addressed especially to Mauritius, the EU “notes with concern the replacement of harmful preferential tax regimes by measures of similar effect in certain jurisdictions,… and stresses that no further replacement with measures of similar effect or delays will be accepted when assessing at the beginning of 2020”.

Among the tax changes introduced in the last budget, it was sought to replace the deemed foreign tax credit with a partial exemption system, and to replace GBC2 companies with new authorised companies. The Mauritian authorities are thus warned that bogus and too-clever-by-half schemes will not carry the day in Brussels.

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Export Oriented Entreprises:
The Minimum wage dealt the final blow

When Air Mauritius plunges, a whole set of experts and the very people who are the cause of this debacle tender advice for a new “business model” for MK, but when the textile industry is in the doldrums it is a question of mismanagement. So the state has to inquire into what and how things went wrong.

But the true mismanagement is the sudden implementation of the minimum wage that followed the generous wage awards of 5.3%, 2.5% and 1.6% in 2015, 2016 and 2017 respectively. From Table I below, we can see that these were not accompanied by increases in productivity. The unit labour cost soared to an increase of 8.1% in 2016.Though it was only 1.9% in 2017, the appreciation of the rupee made things worse.

The decrease in industry growth since 2015 (-3.1%, -5.1%, 0.3 % and -4.0%) can be attributed to declining overseas orders and to labour as well as other costs rising too fast. Increasing labour costs have, to some extent, undermined the international competitive advantage of the textile industry.

The minimum wage should have been awarded on a phased basis giving time to the Export Oriented Enterprises to adjust and boost productivity. The textile sector operates in a highly competitive world market. For the flagship textile companies, they can to a large extent absorb the increases in costs through new orders, higher prices of their products or increases in labour productivity but for the small ones, they are mostly price-takers and they have little choices but to wind up if they are not given enough time to adjust.

It was in that sense that Ajay Beedasee, spokesperson of the Textile and Apparel Manufacturers Association, was alerting us to the fact that the situation is really alarming in the textile sector. Mr Beedasee is not the CEO of a company like Palmar Ltd; for him, more than others, the cost of labour is turning out to be too expensive. Many more textile factories will be closing down. The Textile and Apparel industry presently needs a Marshall Plan and like the sugar sector it is fighting for its survival… These are not “des propos simplistes.”

* Published in print edition on 15 March 2019