InvestMauritius is the brand name by which the Board of Investment (BOI) wants to promote the country to foreign investors. The strategy is far-reaching. In the long run it intends to displace the notion of Mauritius as a tourist spot and replace it with that of the low tax business destination. This represents an aggressive departure from the generally low key approach taken to foreign investment in the past.

Despite this year’s budgetary announcements of an Alternative Minimum Tax (AMT), applicable only to certain companies, tax breaks have remained virtually unknown. So, what does the government exactly offer the business community in Mauritius?

The basic corporate tax rate is low at 15%. But that is not all when we talk of Mauritius as a business-friendly country. The Export Enterprise Scheme, for industries involved in export, allows duty-free import of raw materials and equipment, tax free dividends, free repatriation of profits, dividends and capital and other advantages. It also gives a 50% concession on income tax for two expatriate staff. The Modernisation and Expansion Scheme, is another giveaway in the manufacturing sector, aimed at investment in machinery and equipment. There are a couple of other schemes that propose invaluable benefits for investors.

The Freeport legislation for its part provides another set of financial incentives. There is no corporate tax on warehousing, simple assembly and logistics activities. Profits can be moved to the companies’ country of origin for free and there is an exemption from customs duties on everything imported in the Freeport zones. All these tax breaks are independent of the plethora of logistical facilities offered.

But, it is the budding Information and Communications Technologies (ICT) sector, which is set to benefit the most. Companies get a tax holiday up to 2008 after which they pay the 15% corporate tax, while call centres get the added option of choosing a uniform rate of 5%. Equipments are duty-free, as are two cars if the investment exceeds Rs 50m. ICT expatriate staff can also enjoy a 50% relief on income tax and duty-free import of their personal belongings minus any vehicle. Furthermore, the hi-tech companies pay electricity bills calculated at industrial rates.

Spinning companies live in another tax world altogether. A ten-year tax holiday is available for anyone investing in that area before 2006, added with land at discount rates. Undoubtedly, there is no tax on dividends, capital gains, and repatriated profits. Foreign staff will find their income tax forms as light as their ICT colleagues. The list goes on to include duty remission and absence of VAT on raw materials and equipment, as well as a host of other subsidies. The Government also looks favourably on foreign investors’ visa and residency application. Anyone investing half a million dollars qualifies for permanent residence and access to land.

Coupled with the tourist industry, an old recipient of tax benevolence, the newcomers to tax-exemption, Invest Mauritius style, now form part of the corporate family in the island. Another country, which followed a low taxation policy, is Ireland. As one of the poorest in Europe in the 1980s, the last decade saw unrivalled affluence propel it to third place in the GDP per capita table of the United Nations Development Programme (UNDP). It is now considered the richest in Europe after Luxembourg.

Ireland’s prime position among the rich came on the back of low corporate tax policies. From 20% in the 90s, it was first brought down to 16% before it fell to 12.5% in 2003. This is the third lowest in the world after Japan and Mexico. There is also a special 10% rate for transnational foreign companies. Foreign Development Investment (FDI) is deemed the most important feature of the Irish economy. As most European countries saw their growth stagnate during the 90s, Ireland followed the pattern set by the South-East Asian boom, thus the Celtic Tiger nickname. This is the example that Mauritius wants to emulate through the ambitious BOI.

The whims offoreign companies

Although low corporate tax brought unprecedented wealth to the Irish shores, it also produced a couple of anomalies. It is the only country within the EU zone whose GDP is greater than its Gross National Product (GNP), meaning that the economy is at the mercy of foreign companies. In fact, Irish finance is intricately linked with the performance of America, registering a similar mini recession in 2002 after the World Trade Centre attacks.

The other troubling factor concerns its tax revenue, which, at 28% of GDP, is the lowest in the EU. Sweden, with a corporate taxation of 28% still boasts the highest return at 50.6% of GDP in 2003. The Scandinavian country has managed to top the Human Development Index (HDI) of the UNDP at the same time, while Ireland lies second from bottom among the High Income Countries (HCI).

Despite the remarkable prosperity that low corporate tax bestowed on the Irish, the society rivals America in equality. This is a dire warning to the dogmatic approach of the low tax apostles. While, on the one hand, it will subject the Mauri-tian economy to the whims of foreign companies, on the other, it risks creating such wealth disparity as to irreversibly damage our social fabric.

For a society like Mauritius, which is already showing signs of increasing injustice, we will have to make sure that the poor are not left behind. We will also have to ensure that the environment is not neglected, in this relentless pursuit of economic clout, leaving Mark Twain’s words ringing hollow.

<B>Diren Valayden Outlook Correspondent in Dublin</B>