IndexTaxpayersCalculation of Tax ExpensesEligible DeductionBusiness IncomeThere are two theoretical models for the personal income tax structure which is termed as scheduled tax system and comprehensive tax system. A scheduled tax system is when tax rates are determined by separating income levels into different classifications where each classification represents a different source of income, such as capital gains, business profits, or employment income. They are taxed according to the provisions of the tax law to which it applies. Mauritius operates a global system of taxation in which an individual is taxed on his income derived throughout the world. In a pure global system, the income category is irrelevant since all income and expenses are considered together to arrive at a single net gain subject to tax. However, there is one application which limits this system, namely section 4 of the Income Tax Act 1995, which clearly states that every person must pay tax on all income derived in the preceding year other than exempt income and must be calculated on income taxable at a specific rate. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay After the above statement, the first question that would arise will definitely be some knowledge related to exempt income. Exempt income refers to certain types of income that are not subject to tax. The Second Schedule to the Income Tax Act provides a list of all income exempt from income tax. It is divided into two parts wherein part (i) consists of exempt income bodies such as a charitable institution or trust, a trade union, the Mauritius Sugar Authority, the Sugar Employees Fund, a trust in respect of a pension fund and many others. Part (ii) mainly includes exempt income such as dividends of a resident company, transportation allowance, first 2 million lump sum payment, pass-through benefits, capital gain or emoluments arising from the office of president and vice-president. both from individuals and companies. An individual is classified as a tax resident or nonresident. According to section 73 of ITA 95, there are three conditions for classifying an individual as a resident taxpayer: He is physically present in Mauritius for an aggregate period of 183 days or more in a tax year. He is domiciled in Mauritius unless he lives permanently abroad. Is physically present in Mauritius for a total period of 270 days or more in 3 years of income. An individual is considered non-resident if he does not satisfy one of the three conditions and will be taxed exclusively on his Mauritian source. To be considered a resident, only one condition is satisfied. A resident individual is taxed on both the Mauritian and foreign source, however the foreign source is subject to the remittance basis, meaning that not all income is taxed. On the other hand, a company is considered resident for tax purposes if it is incorporated in Mauritius and has its central management and control in Mauritius, which is the place where the board of directors meets and decides on the main political matters of the company. If the accompanying person is deemed to be a resident, they will be taxed on their worldwide income, whereas a non-resident company is taxed only on their Mauritian source. Tax Calculation Mauritius operates a self-assessment system whereby taxpayers are responsible for paying the correct amount of tax tax on the established dates without waiting for the tax authority to request it. Normally the fiscal year starts from July 1st and ends on June 30th of the yearnext. Generally the tax is paid on September 30, but the deadline is extended to October 15 if payment is made electronically. Everyone must fill out a tax return in which the amount of taxes owed is recorded. The formula for calculating tax is as follows: Gross Income (other than Exempt Income) (Expenses) Net Income (Deductions Allowed) Taxable IncomeGross IncomeGross income is an individual's total earnings before taxes and other deductions. It is the income received for services rendered both in the past and in the present. There are six principles that must be considered before including income in gross income. To begin with, the money received by an employee should accrue to him in relation to his employment rather than his personal or any other capacity. Take for example the tax case Hochstrasser V Mayes HL 1959, 38 which discussed whether compensation for loss arising from the sale of a house was a taxable emolument. The House of Lord held that the compensation did not constitute a taxable emolument as the payment was not made as remuneration but rather in relation to his personal situation as a homeowner. Second, the identity of the payer is irrelevant even if payments were made as a result of employment. In Calvert V Wainwright 1947 tips received by a taxi driver were held to be taxable even if the payment is made by the passenger and not by the employer. Thirdly the payments must be made in reference to the services rendered by the employee by virtue of his position and must be something akin to a reward for services, past or future. In the case of Cooper V Blakiston 1908, Easter offerings given to a vicar by parishioners were taxable as he received these offerings because of his position. Fourth, a one-time payment in the form of personal appreciation is not taxable. In the case of Moore V Griffiths 1972,48 the payment received by the captain of the English football team in recognition of the World Cup victory was held to be non-taxable as it was a one-off payment to celebrate an achievement which is unlikely to be repeated. Fifth, it depends on whether the payment is contractual and, if so, there are valid reasons to include it in gross income. In the Moorhouse V Dooland case of 1955, collections from the public for a professional cricketer were held to be of an income nature as the collections formed part of the cricketer's professional earnings and were provided for in his contract. Last but not least, payments to compensate the payer tax for certain sacrifices made by taking on employment are generally not taxable because they are not in exchange for services. ExpensesAccording to section 17 of ITA 95, any expense wholly, exclusively and necessarily incurred in the performance of the duties of an office or employment is deductible from the gross income earned by the individual in the income year in which it was incurred . Travel expenses such as bus fare are not deductible as they are incurred before and after the service is performed, while expenses incurred by an architect when traveling from one place to another are deductible as they are performed during the hours of work and is productive. Additionally, working from home is also a deductible expense. In Owen V Pook 1970 AC 244, a doctor's travel expenses were considered allowable because he began his duties when the hospital telephoned him, so the expenses were incurred wholly, exclusively and necessarily in the performance of the duties. Eligible Deduction The final step before arrivingthe taxable income deducts all exemptions and reliefs to which the taxpayer is entitled. The first deduction that will be allowed is the income exemption threshold (IET). It is the amount a taxpayer can deduct from their net income before arriving at taxable income. However, this is only possible if the latter is resident in Mauritius in the income year in which the income was received. The table below shows the different categories of EIT and the deductible amount for the income year ending June 2018. The second allowable deduction would be an additional exemption on college education. The taxpayer will be able to deduct Rs 135,000 per dependent if he has a child attending college. However under this section the word dependent only includes children, which means that if the taxpayer's spouse is attending university, he or she will not be classified as a dependent and unfortunately there will be no further exemption. Another allowable deduction is the interest on the real estate loan, but this relief is only suitable for the purchase of the first home. Anyone wishing to expand their home will not be granted any relief unless the home is habitable. If there are no dependents, the benefit must be divided equally between each spouse. There are certain conditions for the taxpayer to benefit from this relief, for example the person must be a resident of Mauritius in the year in which the income is recorded or the person must not be the owner of any other residential building. Furthermore the taxpayer is entitled to relief on medical insurance premium expenses, i.e. he can deduct from his net income the actual amount paid in that income year in respect of a medical or health insurance policy taken out for himself which is limited to Rs 15000 and for his dependents. The amount allowed for the first, second and third dependents is Rs 15000, Rs 10000 and Rs 10000 respectively. In two situations no relief will be allowed. The first would be if the insurance premium was paid by that person's employer and the second when the premium is paid under a combined medical and life insurance policy. After following all these steps we finally arrive at the taxable income which is taxed at the specified rate level. Previously the rate was 15%, but from July 2018 to June 2019 the rate will be applied based on the taxpayer's annual net income. If he earns more than Rs 650,000 per year, he will continue to pay tax at 15%, however if his annual net income is less than Rs 650,000 he will only be charged 10% income tax. However there are some individuals who are not liable to income tax even if they earn income in Mauritius only if their monthly salary is less than Rs 23077 or their annual salary is less than Rs 300000. They are referred to as exempt persons. Business IncomeBusiness means any trade, profession, vocation, occupation or any other profitable activity aimed at profit. Trade refers to the regular exchange of goods and services in exchange for money. Subject to section 44B, companies should pay tax on their taxable income at a specified rate set out in Part I of the First Schedule. A company does not necessarily file the return on 30 September as it can choose the date of closing of accounts and the return will be filed 6 months later. In order to know whether a taxpayer's activity has a commercial nature we must consider the hallmarks of the trade which are the following: Modification of the asset awaiting resale Acquisition method Underlying nature of the asset Repetition Interval between purchase and sale Transaction as 15%.