Most micro and small companies are run by few investors, family members or friends and they have limited resources to spend on tax planning. Such situation has an impact a lot on companies’ cash flow management and how effectively the companies can grow and scale their business.
Tax planning for micro and small companies is important as it reduces the amount of taxable income, enables any tax credits/deductions that may be available and company owners can make smart year-end decisions.
Definition of a Micro, Small and Medium company
The table below depicts various definitions of SMEs based on different criteria in Mauritius (Per SMEDA Act and 10 Year Master Plan) and OCDE.
|COMPARISON OF PARAMETERS USED IN DEFINITION|
|SMEDA Act||10 Year Master Plan||Worldwide (Source:OCDE- SME Eu)|
|Type||T/O||B/S||Number of Employees||T/O||B/S||Number of Employees||T/O||B/S|
T/O: Turnover; B/S: Balance Sheet;
Our tax planning proposals under four categories
a) Income tax
- Income Exemption Threshold
Revision of IET upwards
b) Corporation tax
- Reducing Tax rate
The corporate tax rate of 3% applied on profits derived by any company from the export of goods will be extended to micro and small companies with Turnover of Less than Rs10M for 2020/2021
- The 1% of Turnover as final income tax
Enterprises having annual turnover not exceeding Rs 10million and engaged in specific activities such as manufacturing or trading of goods will be given the option to pay 1 percent of its turnover as final income tax on its business income or file the normal income tax return. Extension to all micro and small companies over 2 years.
- Tax Holidays extension
Tax holiday extended to other business sectors and may apply to already incorporated businesses
- Extension of deadline
Extension of time for tax filing and tax payments, including waiver of late filing and late payment penalties and interests
- Tax incentive to landlords
Reduction in the rental for companies not in operation during lockdown – a tax incentive could be given to the property owners
- Deductions for on-line platforms and Home delivery
Double deduction for expenses related to the set of online sales platforms and home delivery services
- Compulsory Registration under Section 15 (2) (a) (i) of the Act
Those individuals mentioned in the listing too have had their businesses severely affected by the current crisis. The path to the next normal will be difficult and those whose taxable supplies and whose turnover is not likely to exceed the Rs6M should opt-out of the compulsory registration under section 15(1) of the Value Added Tax Act.
- Defer VAT payment
Deferral of VAT payments and proposed instalment payments without interests
d) Tax administration
- Promote simplified and SME- friendly regulatory frameworks
Encourage special support for existing micro and small companies. Encourage a tax and administrative framework that creates a level planning field by applying “think small first” principle, special treatment for SME indirect taxation, as well as grace period regarding direct taxation and special deductions against taxable income.
- Temporary Suspension of on-going tax assessment
Temporary Suspension of on-going tax assessments for SMEs up to December 2020 to enable small businesses to focus on re-building their businesses
Scheme(s) for SMEs to be extended and updated
a. Extension GWAS and SEAS
WAS and SEAS Schemes extended over 6 months for those micro and small companies severely affected during the lockdown period.
Household employees (maids, carers, babysitters) for whom pension contributions were duly paid, were not eligible for GWAS. To extend GWAS to these employees too.
b. Work From Home Scheme (WFH)
- Double Deduction from Tax
Double deduction from tax, of the wage and salary costs of employees, extended for another two years.
- Tax Incentive
Tax incentive to employers under the WFH scheme with an annual tax credit of 5 percent for three years on the required IT investment. Extension of the scheme beyond 30 June 2020.
- Extension to Sole Traders
WFH scheme extended to sole traders at present scheme applies to 5 employees or more.
- Double deduction of directly related expenses
Double deduction for directly related expenses incurred in WFH, including equipment and office-related expenses (wages, subscription to online platforms, cloud servers, etc.)
c. Farming and Agriculture
- Sheltered Farming Scheme
In 2018 Budget, Setting up of 100 farms over the next 2 years under a Sheltered Farming Scheme. Any Review and extension of the scheme for another 3 years now that food security is an issue?
- Promotion of Mini Garden
In 2018 Budget, Promotion of micro gardens, vertical agriculture, and rooftop gardening through Mini Sheltered Farming. A grant of up to Rs10, 000 will be given under the scheme to eligible families.
Provision of funds for the sensitization and training of households in aquaponics for the production of water adaptive vegetables in freshwater ponds and basins.
- Promoting agricultural and electricity production
Promoting a mix of agricultural and electricity production for small planters and cooperatives through a new Scheme.
We have just come out of a health crisis and now amid an economic crisis. The number of micro and small companies facing an uncertain future is growing by the day. With effective tax planning and easier tax compliance, micro and small companies will be able to grow and scale their business, hire, and develop talent. From a societal perspective, Tax planning for micro and small companies can bolster entrepreneurial action thus giving rise to new products and services, capital flows, and employment.
By Jean-Max Appanah (FCCA, MIPA)