VAT Hike Threatens 7,000 Mauritian Small Businesses

Up to 7,000 Mauritian small and medium-sized enterprises (SMEs), particularly those in the food sector, are reportedly facing closure after the government lowered the compulsory Value Added Tax (VAT) registration threshold, adding significant financial and administrative burdens.

This reform, intended to bolster state revenue, has led to falling sales, slashed margins, and increased costs for small entrepreneurs already grappling with inflation and reduced consumer purchasing power.

New Tax Rule Hits SMEs

The key change, implemented on October 1st, requires all businesses with an annual turnover exceeding Rs 3 million to register for VAT, down from the previous Rs 6 million threshold.

• This measure, part of the 2025-2026 Budget, affects approximately 7,000 SMEs.
• The government is aiming to broaden the tax base, improve VAT collection, and generate an estimated Rs 2 billion in additional annual revenue.

Entrepreneurs are now forced to navigate increased administrative complexity, including:

• Quarterly VAT declarations to the Mauritius Revenue Authority (MRA) instead of annual filings.
• The need for stricter accounting and internal procedures, which represents an additional cost, especially for small structures with limited human resources.

Industry Leaders Warn of Collapse

The move has drawn sharp criticism from industry representatives, who fear it will “weaken the smallest structures.”

• Ajay Beedassy, President of the SME Chamber, estimates the threshold should have been maintained at Rs 6 million. He argued that the increasing costs, including the necessity of hiring an accountant for the new quarterly returns, distract entrepreneurs from focusing on business development.
• The SME Chamber had previously alerted authorities to the risks associated with the reduced threshold following its announcement in June.
• Beedassy also suggested the pressure could incentivise some cash-based businesses to operate illegally to avoid the formalities.

The consequences of non-compliance are severe: a fine of up to three times the tax due and a potential prison sentence of up to eight years.

Impact Felt Immediately on the Ground

A month after the reform took effect, anecdotal evidence suggests a downturn:

• Reduced sales and thinner profit margins are being reported by PME owners, who are being forced to raise prices, thereby alienating customers with low purchasing power.
• A seller of sugary drinks in the capital saw sales plummet from over 400 glasses to about 20 a day after increasing the price from Rs 80 to Rs 180. He fears he will have to close his business.
• Maya, a pâtissière in Quatre-Bornes, has had to cut her opening hours and let go of two part-time staff. She states that selling her cupcakes at Rs 85 no longer covers costs, having previously sold them at Rs 40.

Double Blow for Food Businesses

The VAT change compounds existing pressure on food-related SMEs:

• The excise tax on sugar content has doubled since June, rising from 6 to 12 sous per gram.
• Since October 1st, this tax has been extended to include chocolates and ice creams. This is seen by many small entrepreneurs as the “final straw.”

Uncertain Future for Entrepreneurs

The SME Chamber and affected businesses believe authorities should have consulted with stakeholders before adopting such a major fiscal decision.

Many small business owners are now dreading the year-end holidays, traditionally a busy period, fearing a disappointing drop in sales as people “tighten their belts.”

Source: l’Express