Introduction Tax can be defined as a compulsory payment imposed by the government


Introduction
Tax can be defined as a compulsory payment imposed by the government, irrespective of the exact amount of service rendered to the tax payer in return, and not imposed as a penalty for any legal offence.

A tax system has different motives. It includes raising government revenue to finance activities like such as the provision of public goods and services, the redistribution of wealth within a country, contributing to the development of the country, influencing economic factors such as inflation and unemployment rate and discouraging certain activities such as smoking. Tax administration has the role to provide quality taxpayer service, promote voluntary adherence to tax laws and to identify and penalise non-compliance.

In Mauritius, tax administration duties are carried out by the Mauritius Revenue Authority(MRA). It is an agent of the state falling under the responsibility of the Ministry of Finance and Economic Development which also monitors its performance. Tax revenues collected by MRA is around 90%. The MRA also manages, operates and enforces revenue laws. The Income Tax Act 95(ITA 95) and Income Tax Regulation(ITR) contain all statutes laws and acts that are used to govern income tax administration in Mauritius.

Global System of Taxation
Mauritius has a Global system of taxation as opposed to a schedular system. The schedular system requires a separate return for each type of income and the tax is calculated on per return or per schedule basis. It also provides for different tax treatment of different income. On the other hand, under the Global system of taxation a taxpayer has to report all income earned during a taxable period in one income tax return and the income is taxed under the same rule of the income taxation. In short, a single tax is imposed on all income, whatever its nature. Income can be of domestic source and foreign source.

Domestic source of income can be defined as revenue derived from the internal sources/sectors within a country. It includes the sum of all wages, profits and taxes, minus subsidies.

Foreign source of income refers to income earned from investments made outside the domiciled country of the investing entity such as a mutual fund.

In fact, there is a system of self assessment in Mauritius which is mostly based under the concept of residence. Under a self assessment system, the taxpayer is required to declare the basis of his taxable income, to submit a calculation of the tax due and to accompany his calculation with payment of the amount he regards as due. The role of the tax authorisation is to check that the taxpayer has correctly disclosed his income.

Charging Section
The charging section (section 4 ITA 95) states that “Tax shall be paid by every person on all income other than exempt income derived by him in the preceding year and shall be calculated on the chargeable income at the specified rate”.

However, there is a lot of explanation in respect to this legislation.

‘Every Person’
To begin, not every body is taxed. The term ‘every person” implies only taxable person. Taxable persons refers to both individuals and companies. Individuals are further classified as resident and non-resident. The residency concept is defined in S73 ITA 95
For an individual to be considered as resident, he must be domicile in Mauritius; he must be physically present in Mauritius for 183 days or more in that income year and he must be physically present for an aggregate period of 270 days in 2 preceding income years. A resident is taxed on his worldwide income, that is, both in Mauritian source and foreign source. On the other hand, a non resident individual is liable to tax on income from Mauritian sources only, that is, there is no Income Exception Threshold.

According to Section 73A ITA 95, a resident company should be incorporated in Mauritius. It should also have its central management and control in Mauritius. That is, the duties should be performed in Mauritius and the Board of directors meetings take place in Mauritius. Resident companies are taxed on worldwide income. A non-resident company has its place of central management outside Mauritius. It is taxed on Mauritian source of income only.

Furthermore, not every person is taxed. Part 1 of the second schedule of ITA 95 defines a list of exempt bodies of persons. Charitable institutions form part of exempt bodies. A charitable institution should be of public character; should not generate profits for its members and should be engaged in the following activities:
The advancement of religion and education
Protecting the environment
Trying to help those in poverty, illness and disability
The advancement of human rights and fundamental freedoms
Other examples of exempt bodies include: A trade union, A local authority, Benevolent associations ,The agricultural Research Fund.

Furthermore, not every person is taxed. Part 1 of the second schedule of ITA 95 defines a list of exempt bodies of persons. Charitable institutions form part of exempt bodies. A charitable institution should be of public character; should not generate profits for its members and should be engaged in the following activities:
The advancement of religion and education
Protecting the environment
Trying to help those in poverty, illness and disability
The advancement of human rights and fundamental freedoms.

Other examples of exempt bodies include: A trade union, A local authority, Benevolent associations, The Agricultural Research Fund.

It is to be noted that a non-resident providing professional services, expert advice or assistance, teaching, lecturing under arrangement of the government of Mauritius is not liable to tax in Mauritius.(Subject to Minister approval)
‘All income’
The above reference is made to Employment income( individuals) , Business income(individuals and companies) and exempt income.

Employment income includes both’ money’ and ‘money’s worth’.(S 10(1)(a)ITA 95)
Money refers to wages, salary, commission/reward in respect to employment, overtime allowance and bonus.

Money’s worth refers to the fringe benefits derived by the employee. They include: company car, housing allowance, travelling allowance, petrol allowance and any other subsidy derived in the carrying of the business.

There are some principals of employment income.

Money received by an employee shall be given to him in relation to his employment rather than to his personal capacity. This is so because the latter would not have received it he had not been employed. The employee should be paid in reference to services he delivers in respect to his office. It should be in relation to past, present and future.

If payment is made in respect of employment, the identity of the payer is irrelevant.

payments for personal success are not taxable.

Payments made in compensation for any sacrifice made by the taxpayer to forego his employment are not taxable before taking his new employment but later, it becomes taxable.

Morever,S17 ITA 95 states that any expenditure which is wholly, exclusively and necessarily incurred in the performance of duties of an office of employment shall be deductible against the gross income of that individual in the income year in which it is incurred. This is also known as the WEN TEST.

The case of Owen v Pook 1970 AC 244 concerned travelling expenses incurred by a doctor. The taxpayer was a doctor who exercised both in private and at the hospital(this was assessable). The hospital would contact him whenever his services were required. Thus, the travelling expenses incurred by him when the hospital telephoned him were incurred wholly, exclusively and necessarily in the performance of his duty and as such they were an allowable expense.

The WEN test could also face the duality of purpose and this could be fatal.

Business income
S10(1)(b)ITA 95 refers to any gross income derived from any business. Business can be defined by any trade, profession ,vocation, manufacture/ undertaking, or any othr income earning activities carried on with a view to profit.

Trade implies every trade, adventure or concerned in the nature of trade. (It may be that if you are involved in an activity once, this may be a trading activity.) In the case Rutledge v CIR(1929)14 TC 490, the taxpayer purchased 1 million toilet rolls cheaply while in Germany. On his return in UK, he sold them to one purchaser for a substantial profit. The revenue assessed him to income tax on the basis that it was an adventure in the nature of trade. The toilet rolls had not been purchased for personal use and the nature of the items made it unlikely that they had been bought as an investment, making the resale at a profit an adventure in the nature of trade.

The 9 badges of trade are:
Modification of asset pending resale
Acquisition method
Underlying nature of an asset
Repetition/Relative frequency
Interval between purchase and resale
Transaction(How is it financed)
Interest in the same field
Ultimate motive
Sales organisation
S18 ITA 95 explains that any expenditure which is exclusively incurred in the production of gross income shall be deducted against the gross income of that business based on the remoteness principle and duality principle.

Exempt income
Part 2 of the second schedule to the Act caters for exempt income. They include: Basic Retirement Pension( Paid under National Pension Act); Lump sum/gratuity; Rent allowance to persons appointed in police force, fire services, department of civil aviation; Travelling allowance; Passage benefits.

‘Preceding year’
Income tax is payable on income derived in the preceding year. The tax year runs from 1 July to 30 June.

For example, a person is filing his income tax returns on 30 September 2018. The relevant preceding year will be 1 July 2017 to 30 June 2018.
‘Chargeable income’
Chargeable income is calculated as follows:
Gross Income ? Expenses ? Allowable Deductions
The gross income should exclude exempt income. Expenses refers to expenses directed connected to employment. Allowable deductions comprises of exemptions and relief such as: Income Exemption Threshold(IET), Interest on Housing loan relief and medical insurance relief.

Income Exemption Threshold(IET)
The third schedule of the Act caters for IET. A resident individual is entitled to IET which is deducted from taxable income depending on the number of dependent an individual has and if he is a retired person.

The following table shows the income exemption threshold for the period ending 30 June 2019
Category Amount (Rs)
Category A : An individual with no dependent 305,000
Category B : An individual with one dependent 415,000
Category C : An individual with two dependents 480,000
Category D : An individual with three dependents 525,000
Category E : An individual with four or more dependents 555,000
Category F : A retired / disabled person with no dependent 355,000
Category G : A retired / disabled person with one dependent 465,000
Yet, there are certain situations where an individual is not eligible for IET.

If the net income and exempt income of his dependent exceeds Rs 110 000
If the net income and exempt income of his second dependent exceeds Rs 65 000
If the net income and exempt income of his third dependent exceeds Rs 45 000
If the net income and exempt income of his fourth dependent exceeds Rs 30 000
If ever a person has claim an IET of category B,C,D,E or G, then the spouse of that individual can only claim an IET of category A or category F.

Dependent refers to a person who relies on another person for financial support. It constitutes of a spouse who is not working, a child under 18 years old or a child over 18 years old who is in full time education or who is not capable to work due to a physical and mental ability. A child is defined as an unmarried adopted / stepchild.

Retired person refers to those turning 60 years old before 1 July 2018 and who, did not derive any business income exceeding Rs 50 000 other than retirement pension during the year ended 30 June 2019.

Relief for Medical insurance
An individual may claim medical relief premium for himself or his dependents. The relief is limited to the amount of premium or contribution payable for a maximum of
Rs 15 000 for self
Rs 15 000 for 1st dependent
Rs 10 000 for 2nd dependent
Rs 10 000 for 3rd dependent
Relief cannot be claimed if the premium / contribution is paid by the employer or under a combined life insurance policy.

Relief for undergraduate education
In cases where an individual has claimed IET category B,C,D,E or G and the dependent is a child in full time non sponsored education, the individual can take additional exemption of Rs 135 000 in respect of the child. This relief is not allowed for more than 3 children; when the tuition fees are less than Rs 34 800 for a child and when the total income of that individual for 30 June 2018 exceeds Rs 4 million.

Interest relief on housing loan
An individual paying interest for housing loan( secured by mortgage / immovable property) can claim a relief if the funds are solely for construction expenses for the house. Still, the loan should be contracted from DBM by its employees; an insurance company ;banks and non-bank deposit taking institutions. The claim is not allowed if the owner already owns a residential building and has total income exceeding Rs 4 million.

After adjusting the gross income in respect of all the above deductions, we obtain the Chargeable income.

If the individual yearly net income does not exceed Rs 650 000, a tax rate of 10% is applied.

If the individual yearly net income exceeds Rs 650 000, a tax rate of 15% is applied.

If there is no chargeable income after taking into account all the allowable deductions, then there is no tax.