Mauritius: Selected Issues

This Selected Issues paper focuses on improving revenue mobilization in Mauritius and assessing the potential and reform options. The tax gap in Mauritius is estimated at 5.6 percent of gross domestic product (GDP), at the top end of tax gaps of its peers. Both domestic and international taxation reforms could help narrow the gap. Reforming the personal income tax (PIT) and the value added tax (VAT) could altogether yield 3 percent of GDP in additional tax revenue. This could be achieved by lowering PIT thresholds, while increasing the top rates, and streamlining VAT exemptions. The expected implementation of the global minimum tax on corporations internationally provides an opportunity to reconsider the tax policy approach to investment promotion in Mauritius. A desirable strategy for Mauritius would be to move away from the generous benefits offered, including tax holidays, toward a more neutral taxation of investments. While there is potential to mobilize additional revenue through tax reforms, care should be taken that vulnerable households are protected, including through compensatory social spending.