Association of Trust and Management Companies (ATMC) and Global Finance Mauritius (GFM) hosted a panel discussion around Budget 2019-20’s key measures for the financial services sector on the 14 June 2019 at the Hennessy Park Hotel, Ebene.
Sponsored by Bank One, the event welcomed over a hundred key stakeholders from the financial services sector, covering banks, management companies, accounting firms, law firms and institutional investors, amongst others.
Mr Vinod Bussawah, CEO, ATMC, opened the budget briefing event by welcoming the audience to the first edition of the joint budget briefing by the GFM and the ATMC. He observed that the pre-electoral Budget was “a shower of social measures” that seek to put Mauritius more firmly on the path of becoming a high income country which embraces sustainable development. He went on to note that the budget highlights five main measures to strengthen the Mauritius International Financial Centre, and opened the floor to Mr Maheshwar Doorgakant, President of ATMC and Managing Director of Apex Fund Services (Mauritius) Ltd, to shed more light on the key measures and how the IFC can take advantage of the opportunities opened by them.
Noting that this is the first of many joint initiatives by the GFM and ATMC, Mr Maheshwar Doorgakant introduced the panel, represented by financial services stalwarts such as Mr Pierre Dinan, FCA, an independent consultant and noted economist; Mr Gary Gowrea, Head of Structuring and Advisory, IQEQ; Mr Kamal Hawabhay, Managing Director, Global Wealth Management Services Ltd, and Mr Ben Lim, CEO, Intercontinental Trust Ltd.
Challenging macro-economic context
Providing an introduction to the budget against the wider macro-economic context, Mr Dinan noted the challenging global economic environment in which the Finance Minister has presented the budget. ‘We have an economy that is terribly open to the world,’ he observed sombrely, adding that the reduced global growth rates by the IMF, the trade war between US and China, and the challenges posed by Brexit are all significant factors that will affect our export market.
He also highlighted the complex situation confronting the domestic market, where mature Mauritian industries such as sugarcane, textiles, construction and global businesses are facing numerous challenges, compounded by significant modifications to the Double Taxation Avoidance Agreement (DTAA) with India.
As a silver lining, Mr Dinan noted that the international reserves are comfortable, representing 11.2 months of import cover.
“Moreover, our public debt, while sizeable, is made up largely of local currency and not foreign exchange. Hence, the servicing of that debt will not have too much of a deleterious effect on our forex reserves,” he noted.
He ended on the cautionary note that where there is plenty of debate around the quantity of GDP growth, whether it be 3.9% or 4%, there should be more discussion around the quality thereof. The economy must grow on the back of value added industries, especially newer ones, which follow in the footsteps of the economic diversification that has been the hallmark of the island economy throughout the 1980s and 1990s.
Developing new products
In context of the new framework for fund administration and fund management, Mr Ben Lim noted that we must develop new products in line with jurisdictions such as Seychelles and Cayman Islands, which boast thousands of funds located in their shores. In this context, a positive measure in the current budget is the umbrella licence for wealth management, which actively promotes the development of new products in the private banking and wealth management space.
He also observed that “the attractive tax regime to promote the development of Real Estate Investment Trusts (REITs) is a very good thing to enlarge the investment ecosystem and allow people both within and outside Mauritius to get access and exposure to property on the island”. However, he emphasised the importance of ensuring a flexible product that allows investment in different real estate asset classes.
“Especially on the mortgage side, it is important that we take this aspect into account and allow the banking sector to participate in drafting the law, to arrive at an REIT product that is very attractive to investors,” he added.
He noted that the new trading platform by the Stock Exchange of Mauritius (SEM) for medium-sized enterprises is a welcome measure as “companies that do not fit into the current set-up are encouraged to raise capital, go into the market for liquidity and add substance to the SEM.”
Streamlining of regulations
At this point, Mr Doorgakant raised the importance of the business facilitation bill and queried if it is good enough for Mauritius.
On this count, Mr Kamal Hawabhay praised the move to set up a ‘single-window system’ at the FSC to allow for submission of documents for financial services and global business applications. He also mentioned that while he had hoped the budget would have more measures to encourage banks to lend to global businesses, especially those in Africa, he would welcome a banking insight on how effective the special VAT exemption on income derived by banks from Global Business Companies would be in this regard.
To this question, Mr Carl Chirwa, Head of International Banking at Bank One, noted that ,”We need to unpack the measure of special VAT exemption on income derived by banks from global businesses to see how we can take advantage of it. We know that this measure is structured to help Mauritian banks catch all the FDI that flows into Africa. However, big banks are present in the continent and Mauritius banks might not be able to compete on size. But what I can confirm is that we are not going to let size come in the way – we are going to do smart things in smart countries.”
Mr Lim noted that we are already significantly well poised on ease of doing business, and “these changes will improve the flow of information between us and other African countries.”
Partial Exemption Regime
On the tax front, Mr Gary Gowrea emphasised that the budget has much to offer, however, at the outset, it was important to develop the global business sector as a value added sector without tax exemption being an overriding consideration.
He also cautioned that “while we have a tick from the OECD on the partial exemption regime, the concern is more from the EU.” The overriding question by the EU is how do you ensure that businesses carry out core economic activities in Mauritius and satisfy substance requirements. For this, he noted that the IT Act will now be amended to bring such requirements under it, instead of under the Financial Services Act. He stated, ”People and premises are the cornerstone of substance requirements. While the EU says that we can outsource activity, but the issue is the multiple outsourcing of activities.”
He also commented on Controlled Foreign Company (CFC) rules and reiterated that “the government would have no difficulty in implementing this rule because here on the island, investment structures are investing in active companies.“
Missing measures and budgetary gaps
Needless to say, while the budget has much to offer all stakeholders, there are certain items that remain on the wish list.
On this front, Mr Dinan queried the budget’s twin failures to take into account the immense potential of the 2.5 million square kilometres of maritime space as well as the need to upskill local talent to avoid overdependence on immigrants.
Mr Hawabhay queried the lack of extension of the partial exemption regime to FinTech, noting that while the budget gives a preponderance of tax holidays to several sectors, FinTech is a prominent exception. As one of the emerging industries that is being eyed as a potential diversification avenue for the Mauritian economy, he cautioned that we must not lose sight of the importance of developing this sector.
In closing, he warned that “we must show respect to the financial services sector and resist the temptation to pay only lip service to it”.
In the Q&A session, important concerns were raised around the potential prospect of EU putting pressure on Mauritius to do away with selling residency rights in return for bringing in high-value investments; the short-term nature of macro-economic measures such as using Bank of Mauritius reserves to pay off the public debt as well as the need to comply with more stringent substance requirements by the EU.
Following the insightful panel discussion, Mr Ravneet Chowdhury, CEO, Bank One, presented tokens of appreciation to all the panellists.
Finally, Mr Samade Jhummun, CEO, GFM, delivered the closing remarks, thanking Bank One and ATMC for extending their support to the event. On a closing note, he mentioned that Budget 2019-20 has much to offer for all key stakeholders in the financial services sector.
“Be it in the form of diversifying our product offerings, streamlining legislations to improve ease of doing business, or strengthening the regulatory framework, the Budget has decisive measures to offer on all fronts,” he stated.
“At the heart of all budgetary measures pertaining to the financial services sector lies the firm intent to ably build upon last year’s Blueprint for the sector to guide our path to continued growth and success,” he concluded.