Sithanen told Parliament that the new budget focuses on achieving full employment, improving the standards of living of the whole nation, and putting the country back on the road to prosperity.

Central to attaining this goal is the reduction of corporate tax to a flat rate of 15%, a measure which has been brought forward by two years to July 1, 2007. This flat rate will also apply for personal income tax. Initially, the government had planned to reduce corporate tax in stages, starting with a cut in the top rate to 22.5% last year, to 20% this year and to 15% by 2009.

However, according to Sithanen: "Timeliness is of the essence and we have to act decisively right now to boost investment and growth."

In a bid to simplify the tax system and attract the creation of more business, many exemptions have been overhauled, and the numerous deductions in the old tax system have been consolidated into new income exemption thresholds, with the number of tax bands reduced to just two.

"Last year, I took bold steps to reform our personal and corporate income tax system," the Finance Minister stated. "Because of its numerous tax breaks and exemptions, the system had become very complex and offered vast opportunities for abuse and tax avoidance. It led to inequity and inefficiency and was biased against small enterprises. It was also hindering the emergence of a fully-integrated and competitive economy."

"We now have a new system that is much fairer and transparent," he continued. "I am pleased to report that with the significant increase in the exemption thresholds for all, 36,600 taxpayers, on PAYE, out of a total of 72,000, have been taken out of the tax net. And there are indications that of those who are still in the tax net, the vast majority are paying less than previously. We also have a system that is now geared towards rewarding effort and entrepreneurship."

The budget also standardizes the tax payment period for companies and self-employed workers. Under the system, known as the Advance Payment System (APS), companies will be required to effect quarterly provisional tax payments on basis of the chargeable income of the preceding tax return. As is the case under CPS and PAYE, final reconciliation of tax liability will be done when the annual tax return for that year is submitted. To reduce the impact on firms paying two lots of tax in one year, Sithanen said that the government will allow payment of the tax due for the previous year to be spread over 3 years, in equal installments. Small firms will also have two years to adjust to the new system, while large companies, i.e. those with a turnover of more than R100 million annually, will have one year. Thus, the first quarterly payment will be required from large companies only as from the financial year starting 1st July 2008, and for small and medium companies, as from 1st July 2009.

Another reform will mean that companies with an annual turnover above R30 million, or more than 50 employees, will be required to submit their income tax and VAT returns electronically.

However, the latest budget introduces a special levy on the banking sector. This includes a 0.5% tax on turnover and a 1.7% tax on profits. For the first year of application of the levy i.e. in 2007/08 the amount payable will be 30% of the formula. This measure is estimated to yield R75 million (US$2.4 million) in 2007/08 and R260 million subsequently.

"The banking sector is known to be especially flourishing and profitable and has the capacity to pay," Sithanen stated. "I expect that most banks would still have a relatively lower tax liability even after payment of the levy. Appropriate safeguards will be laid down in the Finance Bill to ensure that this proposal does not unduly affect small banks."

Sithanen also announced an impending review of business licence fees which is expected to raise more revenue for the government.

Additionally, the budget makes provision for two schemes which aim at facilitating settlement of tax disputes and for voluntary disclosure of under declared or undeclared income. Sithanen explained that the objectives are two-fold: to collect tax dues for financing public infrastructure and social assistance programmes; and to enable funds to get back into the formal sector so that they can be put to more productive use in the economy. The first Scheme is the Tax Arrears Payment Incentive Scheme (TAPIS). It aims at mopping up outstanding tax arrears and claims under litigation. The second, the Voluntary Disclosure Incentive Scheme (VDIS) aims at encouraging disclosure of under-declared income/turnover. The two schemes will cover Income Tax as well as VAT.

Sithanen revealed that he is providing for a 75% waiver of the penalty/interest element to those joining the scheme, bringing the interest on tax due to only 0.5% per month or 6% per annum, instead of 24% per year. Those joining the Scheme will be provided immunity from prosecution under tax laws in respect of the tax so declared and settled. The two Schemes will be open to all taxpayers except those involved in drugs-trafficking, corruption, terrorism activities or money-laundering.

The Voluntary Disclosure Incentive Scheme will cover taxes in respect of the year ended 30 June 2006 and four earlier years. The two schemes will operate for only 6 months, and will be terminated on 31 December 2007. "The penalty rebate will be a one-time concession that will not be repeated in future. Any request for waiving of penalty after expiry of the incentive period will not be entertained," Sithanen stated.

To attract more expat workers, foreigners working in Mauritius for at least 3 years and with a minimum basic salary of R150,000 will be eligible for Permanent Resident Permits, and will be allowed to purchase property. The maximum number of days allowed for a business visa is being increased from 90 to 180 days. A Short Term Residence Permit of up to 9 months, renewable once for a maximum of period of three months, will be granted to foreigners who have to work in Mauritius for less than a year.