Overview of The Structure of The Personal Income Tax

Understanding the structure of personal income tax is crucial for both individuals and businesses operating in Mauritius. This essay provides an overview of the personal income tax system, focusing on its framework, key components, and implications for taxpayers.

Tax Systems: Schedular vs. Global

Two primary models exist for structuring personal income tax: the schedular tax system and the global tax system. In a schedular tax system, tax rates are determined based on various income classifications, such as capital gains, business profits, or employment income. Each classification is subject to specific tax provisions. In contrast, Mauritius employs a global tax system where individuals are taxed on their worldwide income. This approach disregards the category of income, consolidating all earnings and expenses to calculate a single net gain for taxation.

Exempt Income and Tax Liability

While Mauritius operates a global taxation system, certain restrictions are outlined in Section 4 of the Income Tax Act 1995. This section mandates that every individual must pay tax on all income generated in the preceding year, excluding exempt income. Exempt income refers to specific types of earnings that are not subject to tax, as detailed in the Second Schedule of the Income Tax Act. This schedule categorizes exempt income into two parts:

• Part (i): Exempt bodies of income such as charitable institutions, trade unions, and various funds.
• Part (ii): Exempt income types, including dividends from resident companies, transport allowances, and certain capital gains.

Classification of Taxpayers

Taxpayers in Mauritius are classified into individuals and companies. An individual may be a tax resident or non-resident based on specific criteria outlined in Section 73 (1) (a) of the Income Tax Act:

• Physical presence in Mauritius for 183 days or more in a tax year.
• Domicile in Mauritius unless permanently residing abroad.
• Physical presence in Mauritius for 270 days or more over three income years.

Non-resident individuals are taxed only on their Mauritian-source income, while resident individuals are taxed on both local and foreign income, albeit under a remittance basis. Similarly, companies are considered residents for tax purposes if they are incorporated in Mauritius and have their central management and control within the country. Resident companies are taxed on worldwide income, while non-resident companies are taxed only on Mauritian-source income.

Tax Calculation for Employment Income

Mauritius employs a self-assessment system, where taxpayers are responsible for calculating and paying the correct amount of tax. The tax year runs from July 1 to June 30 of the following year, with tax payments generally due by September 30. However, this deadline is extended to October 15 for electronic payments. Taxpayers are required to submit a tax return detailing the amount of tax owed. The calculation of tax involves several steps:

1. Gross income
2. Net income
3. Chargeable income

Gross income encompasses total earnings before any deductions, including salaries, bonuses, and other compensations. The determination of gross income follows six key principles, ensuring that only appropriate earnings are included.

Deductions and Exemptions

Before calculating chargeable income, taxpayers can deduct various exemptions and reliefs. The Income Exemption Threshold (IET) is a significant deduction available to resident taxpayers. The IET allows individuals to deduct a specific amount from their net income before arriving at the chargeable income. The table below illustrates the IET categories and amounts for the income year ending June 2018:

In addition to the IET, taxpayers may also claim deductions for education expenses for dependents, interest on housing loans, and medical insurance premiums. These deductions are subject to specific conditions to qualify.

Tax Rates and Exempt Individuals

Upon determining chargeable income, the applicable tax rate is applied. Previously, the tax rate was set at 15%. However, from July 2018 to June 2019, a progressive tax rate was introduced, with individuals earning above Rs 650,000 paying a tax rate of 15%, while those earning below this threshold were taxed at 10%. Certain individuals earning less than Rs 23,077 per month or Rs 300,000 annually are exempt from income tax.

Business Taxation and Allowable Deductions

Businesses in Mauritius are required to pay tax on their chargeable income at a specified rate. This rate is outlined in Part I of the First Schedule of the Income Tax Act. Companies can choose their accounting period, with tax returns due six months after the closing date. Various allowable expenses, including interest on capital, bad debts, and pension contributions, can be deducted from gross income before arriving at net profit. However, specific expenses are disallowed, such as those of a capital nature or related to exempt income.

Negative Income Tax and Double Taxation Agreements

The Negative Income Tax (NIT) system, introduced on July 1, 2017, provides financial support to employees earning a basic salary below Rs 9,900 monthly, rather than imposing taxes. Eligibility for NIT requires Mauritian citizenship and specific income criteria. Additionally, to prevent double taxation, Mauritius has established Double Taxation Agreements (DTAs) with several countries. These agreements clarify tax obligations for individuals earning income abroad and provide mechanisms to mitigate double taxation.

Conclusion

In conclusion, Mauritius operates a comprehensive global taxation system that ensures fairness and transparency for taxpayers. The Mauritius Revenue Authority plays a pivotal role in maintaining this system by offering various incentives and support. The structure of personal income tax in Mauritius is designed to be straightforward, facilitating compliance while promoting economic growth.

References:

• Income Tax Act 1995
• Mauritius Revenue Authority Website
• Ministry of Finance and Economic Development, Mauritius