Mauritius’ tough balancing act as a tax haven

This has also seen a marked increase in the number of millionaires, growing faster than in any other country in Africa over the last ten years. The number of individuals whose net worth is $1 million has grown threefold to reach 3,800 according to the AfrAsia Bank’s Africa wealth report.

What has made Mauritius a magnet for multinationals and wealthy individuals is a tax regime that provides no payment of taxes for offshore companies and bank accounts while offering confidentiality to corporates and individuals who choose to invest there.

For example, the provision to register companies that are not local under the Mauritius Global Business Company type II arrangement means that such businesses do not pay local taxes, no withholding tax on dividends and their foreign earnings are not taxed locally. Capital gains tax is also not levied.

Mauritius has also entered into tax treaties with various countries including the double taxation agreements that help companies avoid being taxed twice for the same economic activity. In principle, however, this has meant that such an agreement with a country like Mauritius sees majority of the companies not taxed at all.

This has seen them take advantage of this window to repatriate profits from their mother company in countries where the taxes are relatively higher to either offshore companies or accounts they have created. Studies indicate that global businesses in the country have an asset base worth over $630 billion, almost 50 times the size of the country’s GDP.

This, however, has not gone down well with neighbouring African countries that have accused the island nation of benefiting at their peril. They have already launched a case to this effect with the international community.

And while the country, it has been argued, has had good intentions with its tax regime to incentivise prospective investors, it has been accused of being a haven for wealthy business people and companies to hide their ill-gotten wealth and evade tax. The United Nations Economic Commission for Africa in 2013 labelled the country as a relatively financially secretive conduit that has fanned poverty on the continent.

The European Commission in 2015 on a temporary basis placed Mauritius among the top 30 blacklists of tax havens. And last year, not for profit organisation Oxfam named Mauritius among the 15 worst tax havens globally. It was the only country from Africa on that list.

“Corporate tax havens are helping big business cheat countries out of billions of dollars every year. They are propping up a dangerously unequal economic system that is leaving millions of people with few opportunities for a better life. Tax dodging by multinational corporations costs poor countries at least $100 billion every year. This is enough money to provide an education for the 124 million children who aren’t in school and fund healthcare interventions that could prevent the deaths of at least six million children every year,” Esme Berkhout, tax policy advisor for Oxfam said in a statement.

The full scale of this tax haven debacle was the Paradise Papers leak that exposed the central role Mauritius plays in Africa offshore business dealings.

At the heart of the leaks was Appleby, a global offshore law firm that advises its clients on the most favourable countries to stash their wealth. In Mauritius, it had over 40 staff who were actively involved in managing the clients’ businesses. Thousands of leaked emails, Powerpoint presentations and bank account applications on tax avoidance from Appleby would bring to the fore how Mauritius had been used as a nucleus to protect the assets and profits of the wealthy from being taxed.

“This leaks have been particularly important in bringing to light how much the issue of tax havens has especially affected Africa. While countries may have been offering tax incentives for noble reasons, multinationals and wealthy people have abused this, and even gotten more sophisticated in tax evasion,” said Dr. Blamwell Othieno, a tax expert in East Africa.

Arnold Mutegi, a lecturer at the University of Nairobi’s School of Business concurs. “Africa loses $50billion every year to tax avoidance especially by multinationals through countries like Mauritius. If governments in Africa are able to get this tax, then there would be no need for foreign aid. It is a debate that requires serious international attention and goodwill because those who perpetuate this have now become bolder and daring and it is hurting African economies greatly.”