The 2005-06 Budget is primarily built around one innovative concept, Mauritius becoming over time a duty-free island, and is clearly aimed at changing the mood of the country with a bold and substantial customs tariff reform which should eventually translate into lower customer prices.

This year?s Budget will most likely be seen as a breather and a way of rewarding the nation for patiently enduring four years of belt tightening. Some Rs 1.7 billion in revenue is thus foregone in what the minister of Finance called ?an unprecedented initiative?.

Despite this, Government hopes to achieve what it called ?a sustainable? 4.8% Budget deficit. Few sectorial measures were announced and tax measures were few and modest. Social justice however was high on the agenda, with numerous measures directed towards specific groups (senior citizens, the handicapped, women, small planters, students, small business and the disadvantaged).

Various schemes sought to increase finance availability for new small entrepreneurs and promote self-development of individuals by way of soft loans.

The important customs tariff reform announced by the minister of Finance cuts tariffs on 1,850 tariff lines. 80% of tariff lines will become duty-free and the maximum tariff rate is being brought down from 80% to 65%. After a four-year adaptation process, Mauritius is meant to become ?a duty-free island and a shopping paradise? for visitors. The minister called the move ?a historic decision? which should ?open new economic space and encourage entrepreneurship?, generating what he termed ?massive investments across the entire economy?. He proposed ?a Big Push approach to investment? based on the modernisation of the national infrastructure and on stimulating private investment and productivity.

● <B> New economy ? duty-free island</B>

? Make Mauritius a duty-free island which will transform the country into a shopping paradise for tourists. The aim is to create a new and unprecedented dynamism in the economy for investment and to take a big step toward the full employment growth path.

? The Duty-Free Island Project will be phased over four years.

? The highest customs duty rate of 80% in the tariff book is being removed on all items of clothing, articles of leather and jewellery.

? The rates of duty on numerous products will be either removed or reduced.

? A Shopping Mall Scheme will be set up to promote, encourage and facilitate the development of modern integrated business, shopping and leisure centres.

? The Shops Act will be repealed to enable retailers, except those dealing in alcoholic beverages, to choose their opening hours.

● <B> Modernising Mauritius</B>

A total of Rs 100 million will be required over the next ten years to upgrade and enhance the infrastructure of Mauritius. The new budget encourages the use of Public Private Partnerships (PPP) to finance these projects, through the PPP Unit and Board of Investment acting as facilitators.

● <B> Transport </B>

Increase in both passenger and cargo traffic requires a master plan for the construction of a new terminal, runway, cargo zone and other facilities that require a total Rs 7 billion of which Rs 2 billion shall be financed by the private sector.

Provision of aeronautical services and related fuel now zero rated for Value Added Tax (VAT) purposes, in order to allow for recovery of input taxes.

● <B> Port </B>

? A planned Rs 2 billion investment by Mauritius Ports Authority and Cargo Handling Corporation for the construction and extension of quays and terminals and other related equipment.

? Potential restructure in maritime freight rates.

? Land transport and decentralisation.

? Four new road projects in Mauritius totalling Rs 1 billion (Rs 445 million budgeted in 2005).

? Port-Louis traffic diversion estimated at Rs 6 billion. Total capital cost of land transport projects estimated at Rs 9 billion over next five years.

? Light Railway Transit still at study stage. Estimated total cost of Rs 14 billion.

? More VAT exemption for the purchase of buses by small operators.

Plans for new business parks, office buildings and residential constructions on land bought under the Illovo deal. Several government departments to be relocated there.

● <B> Waste management </B>

? Rs 500 million budgeted for construction-upgrade of dumping sites and waste management. Total cost over ten years estimated at Rs 3 billion.

? Private sector involvement encouraged by removal of customs duty exemption on specialised equipment and vehicles.

? Total remaining cost of wastewater management estimated at Rs 8.6 billion. Rs 1.35 billion budgeted this year.

● <B> Energy and water resources </B>

More investment (Rs 2.9 billion) in upgrading power stations. Energy saving encouraged by reducing duties on power saving devices and launching a sensitisation campaign.

Total of Rs 8 billion required by the Central Water Authority over medium term to reduce water losses, increase quality of drinking water and improve delivery and efficiency.