VAT, The Cash Cow That Keeps on Reaping – Rs 61 Billion

According to the latest budget estimates, the government expects to generate Rs 116 billion in taxes on goods and services in 2024-25 and Rs 127 billion in 2025-26.

One of the key contributors to this revenue surge is the Value-Added Tax (VAT), which has seen a significant increase over the past three years.

From Rs 38 billion in 2020-21, VAT has grown to an estimated Rs 61 billion for 2023-24. As the government approaches its next budget, VAT is expected to be a significant contributor to the state’s revenue.

Economist Manisha Dookhony describes VAT as a “star tax” for the government, as it is a reliable source of revenue.

According to her, VAT is the largest component of taxes on goods and services, accounting for more than 65% of the country’s consumption.

“The VAT is omnipresent in our lives, and it has a huge potential for generating revenue for the state,” Dookhony explained.

“An increase in consumption means that economic activity is increasing. VAT receipts rise as a result.

Even tourists’ consumption is added to the domestic population’s consumption, which allows us to project such figures regarding VAT receipts.”

The government’s growth forecast for 2024, according to Maurice Stratégie, is a nominal GDP growth rate of 12.3%, driven by factors such as consumption (3.2%).

For 2024, global consumption expenditure is expected to increase by 8%, contributing 3.2 percentage points to GDP growth.

In Maurice Stratégie’s “Economic Review 2023 and Outlook 2024,” it is noted that consumers with lower incomes are driving higher consumption rates.

However, not everyone is benefiting from this growth. According to Suttyhudeo Tengur, president of the Association for Consumer Protection and Environment (APEC), VAT is a burden for those at the lower end of the income scale.

“Consumption is increasing progressively every year, between 5% and 8%. The government’s revenues from VAT this year should be higher than last year, as consumption has increased.

The number of new vehicles on the road is a good indication of VAT’s contribution to the government,” Tengur said.

Interestingly, in Budget 2023-24, Finance Minister Renganaden Padayachy announced that VAT on 15 essential consumer goods for Mauritian families was being removed.

This move aimed to alleviate consumers’ burden due to price increases. However, some experts argue that this move may have resulted in a significant loss of revenue for the state.

Dookhony pointed out that a significant portion of essential consumer goods are exempt from VAT or have a zero rate.

“These products are targeted at ensuring that low-income consumers are not impacted. Any support granted by the government would be a loss for the state.”

Source: Defi Media