Value-Added Tax Rates

The value-added tax rates by sector are pertinent in solving the computable general equilibrium model for Mauritius. The value-added tax rates are important concerning the

adoption of other policy changes that occurred from 1997-2000, with 2000 being the year chosen because of the natural “break” in the preferential pricing agreements for sugar. Thus, it is

162 Imports of goods and services are gross of import revenues in the model and therefore the tariff revenues are not included in the indirect taxes net of subsidies total.

163 Please see the 1997 Input-Output Table’s Taxes on Products row versus the Subsidies on Products row by sector.

Other Agriculture has a zero taxes on products (not including the import revenues) and receives the third largest subsidization in 1997 of 14% of the total subsidies issued. However, quite the opposite holds for the Other Manufacturing sector. It comprises 77% of the total taxes on products. And, even though it receives the largest share of total subsidies of 57%, the 4.4 Rs Thousands that it pays in taxes swamps the 0.4 Rs Thousands in subsidies it receives.

incorporated into the counterfactual simulation that is run on the 1997 base. Since the Mauritian government did implement the value-added tax, the 2000 value-added tax rates are needed to reflect this domestic policy change of the tax structure.

The value-added tax was introduced September 7, 1998 to replace the sales tax on goods.

The value-added tax rate was 10% on the supply of goods and services in Mauritius, chargeable on the value of supply. This tax is also levied on the importation of goods into Mauritius.¹⁶⁴ Thus, in 1997, the sales tax of 8% was in effect. But, in 2000, the official value-added tax rate of 10% was in effect. However, several goods and services are exempted from the value-added tax.

165 The main items exempted from the value-added tax are the basic foodstuffs like rice, flour, fish, meat and vegetables, medicines and medical services, herbicides, educational and training services, journals and periodicals, aircrafts, ships and fishing vessels, financial services, transport of passengers by sea or air, sale or transfer of interest in land liable to Registration Duty, and the sale, construction and renting of buildings for residential purposes.¹⁶⁶ As a result, the

imposition of the official tax rate was 10% in 1997, but due to exemptions within certain sectors, the effective rates are not uniform across sectors.

The value-added tax data is provided by the Value-Added Tax Department and the Central Statistics Office of the Government of Mauritius. In particular, the 2000 value-added tax revenue database was sent to me via e-mail by the Customs and Excise Department of the

Government of Mauritius. A total of 4,328 records are in this database. Like the import and export data, the data is reported in the HS96 tariff line coding, even though the Supply and Use Table is characterized by the ISIC, Rev. 3 product code. So, again applying the ISIC, Rev. 3 and

164 This is information gathered through correspondence with the Value-Added Tax Department of the Ministry of Finance.

165 See Appendix F for the detailed value-added tax exemption list.

166 Ministry of Finance, http://ncb.intnet.mu/mof/department/vat/about.htm, accessed April 19, 2002.

HS96 correspondence as in the regional share calculations, I assigned the 4,328 records to the 11 sectors in the CGE model with exemptions included.¹⁶⁷ In this case though, the zero values of the value-added tax are applied to exempted goods and services and a rate of 10% to all other goods. Then, the aggregate of the total number of goods with a zero value-added tax rate and the total number of goods that have the official 10% rate applied to them are divided by that total number of goods assigned to that sector to get the value-added tax rate for that sector (0 records assigned to SUG; 210 records assigned to OAG; 4 records assigned to SMI; 1,120 records assigned to EPZ; 2,981 records assigned to OMA; 1 record assigned to EGW; and 12 records assigned to OSR). Table 8 reflects the average value-added tax rates computed for each sector in 2000 using the methodology outlined above:

Table 8: 2000 Value-Added Tax Rates by Sector (Percentage)

Sector Value-Added Tax Rates

Sugarcane 0.00%

Other Agriculture 3.52%

Sugar Milling 10.00%

Export Processing Zone Manufacturing 9.37%

Other Manufacturing 9.50%

Electricity, Gas, and Water 10.00%

Construction 0.00%

Wholesale and Retail Trade and Repairs 0.00%

Restaurants and Hotels 0.00%

Transport, Storage and Communications 0.00%

Other Services 5.83%

As a result of the exemptions valid in 2000, the Other Agriculture and the Other Services sectors have non-zero value-added tax rates well below the official rate. In fact, only two sectors reflect

167 For 2000, the exemptions were accounted for in the data with The Value Added Tax: Goods and Services Exempted from VAT, 1 September 1999 pamphlet.

the official value-added tax rate in 1997, the Sugar Milling sector and the Electricity, Gas, and Water sector. Therefore, the value-added tax rates are not uniform across sectors due to the exemptions afforded to certain sectors, and since the value-added tax is applied in a non-uniform manner, it is a distortionary tax in the Mauritian economy.