Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the treasury of the state?

The Wealth of Nations, Book V Chapter II Pt II

Adam Smith laid down the four canons of taxation: the cost of collection must be low relative to the yield; the timing and amount to be paid must be certain to the payer; the means and timing of payment must be convenient to the payer; taxes should be levied according to ability to pay.

The National Residential Property Tax (NRPT) fails the four maxims above. A property tax, as the name implies, is basically a tax on real property. The amount of such a tax varies according to the value of the property. Therefore, no tax can be levied without an initial assessment of the property. Valuation of a property for tax purposes is not limited to the calculation of its floor area only.

Other factors such as location, quality, style, age, construction materials, accessories, surrounding neighbourhood, available amenities and nearby facilities, access to road, public transport and public services, etc. are also considered to obtain a fair market value. Property tax has been in existence for at least three millennia. It is common throughout the world and has often been the bone of contention of political, passionate and controversial debates.

However, several characteristics of property taxes have contributed to their declining relative importance in many parts of the world, where the maximum yield presently achievable rarely exceeds 10 percent of total national tax revenues. Amartya Sen, the Indian Economics Nobel prize laureate, laid strong emphasis on welfare economics, an essential branch of economics that seeks to evaluate economic policies in terms of their effects on the well-being of the community. Sen, who devoted his career to such issues, was called the ?conscience of his profession.? According to Sen, any economic policy that is devoid of the welfare part is bound to inflict more harm than good on its subjects.

The property tax, Mauritian version, is not a tax based on the actual property value, but on the level of income of its owner. The NRPT title is therefore a misnomer. Furthermore, irrespective of the property type, age, location, etc., a standard rate is being levied. What's more painful is that tenements above ground floor level, enjoying lesser privileges than ground floor habitation, are being taxed three times more! What is the logic of treble-taxing those living vertically when it is widely known that living in apartments has got many inconveniences compared to ground floor living? The tax confers negative liberty. The concept of negative liberty refers to an individual?s freedom from authority. According to Thomas Hobbes, ?a free man is he that is not hindered to do what he hath the will to do?.

This tax fails all taxation principles and the way it is, it will be the root cause of family disputes. Week after week, at every social and religious function, our prime minister, Navin Ramgoolam rightly reminds us of the virtues and teachings of all the religious scriptures of the world, and exhorts us to be guided in our life by the sacred dharmas and karmas. Unfortunately, he is unaware that certain policies of his government, such as the NRPT, are in total contradiction with his philosophy.

The MRA tells us that ?if a residential building is constructed on top of an existing building by virtue of a droit de surélévation, it is deemed to be a flat?. This means the tax payable will be Rs 30 per square metre instead of Rs 10! Now, we all know that it is customary in Mauritius for parents to allow their sons, as soon as they get married, to construct their house upstairs. To avoid the family paying double tax, sons will now not opt for droit de surélévation, keeping the whole house in the name of the retired father. Over time this will give rise to family disputes over inheritance, which is one of the main scourges affecting Mauritian families! NRPT will therefore disrupt family harmony. Similarly, with an undivided inherited property, heirs will fight among themselves as to who will bear the burden of taxation.

The notes relating to NRPT on the tax form are confusing. Note 7 states: ?if you were resident in Mauritius and derived total income (net income and exempt dividend) not exceeding Rs 385,000 during the income year ended 30 June 2007, you are not liable to the tax.? There is NO mention of interest income. However, section 11 of the form, dealing with NRPT, calculates your net income, dividends AND interest received, to determine NRPT eligibility. Which is which?

Only those with officially declared income will come within the tax net, whilst certain households with massive undeclared incomes will evade NRPT despite owning palaces.

To make matters worse, we now have to pay tax on interest. The MRA website, however, lists interest as ?exempt income?! Which is which? It is no secret that the average Mauritian household pays more interest on loans than it receives on savings but there is no mechanism to compensate us for interest paid on loans. This will discourage savings, leaving banks short of lending capital to satisfy growing credit demands from budding entrepreneurs.

The ?Putting people first? government has noble intentions, but the paths being travelled will leave its members wandering in the dark, far away from their objectives.

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