The Financial Sector: Challenges ahead.

Published in the MTimes 21 September 2018

The Government’s cheerleaders had every reason to cheer at the fact that Mauritius has moved up the rankings of the Global Financial Centres Index (GCFI) - from 56th to 49th (though GCFI also classified Mauritius among the “unpredictable centres”, which have a higher variance of assessments, meaning less stable). That’s because lately the Global Business Sector has been feeling the heat from all sides.

First, we had the case of Mauritius being classified as a high-risk jurisdiction by a few global banks, namely Deutsche Bank, Citi, Standard Chartered and JP Morgan. Mauritius was one among the 25 countries in the list of high risk jurisdictions compiled by these global banks in India. Next, we had a dig from our dear African brothers that the Global Business Companies (GBCs) are just doing ‘brassplate’ operations in Mauritius and that many of them are “relatively financially secretive conduits” to illicit financial flows.

This was followed by the Eastern and Southern Africa Anti Money Laundering Group’s Mutual Evaluation(ESAAMLG) Report (an exercise to assess whether the necessary laws, regulations or other measures required under the essential criteria of the Financial Action Task Force (FATF) Methodology are in force and effect, whether there has been a full and proper implementation of all the necessary measures, and whether the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) system as implemented is effective – which report was quite damning for Mauritius. Equally worrying was the fact that Mauritius is ranked 51th in the Global Real Estate Transparency Index, and is considered as “semi-transparent”, i.e. with existing risks of money laundering.

Moreover, the latest statistics on FDI from the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India, show that Singapore has, over each of the last three quarters, channelled more FDI into India than Mauritius. As shown in the FDI Equity Flows into India Table, in the last quarter ending June 18, Singapore not only provided more FDI than Mauritius, but more than all other countries put together.  

Table 1: FDI Equity Flows into India by Quarter (USD billion)

	Oct – Dec 17	Jan –Mar 18	Apr – June 18
Mauritius	1.9 (17.2%)	2.6 (29.1%)	1.5 (11.7%)
Singapore	3.9 (37.0%)	3.0 (33.3%)	6.5 (51.1%)
Total (inc. others)	10.6	8.9	12.8

Last but not least were the legal amendments to the Finance Act 2018 which will be affecting the prospects of the financial sector. Many of the financial sector operators, including the Association of Trust and Management Companies Mauritius, are quite worried about some of these changes. For example, they consider too onerous (meeting both the Central Management and Control (CM & C) and the Place of Effective Management (POEM) tests for determining the tax residence of existing GBCs. There are also other issues like the restriction on the use of the Authorised companies. The operators are of the opinion that “the global business sector is currently facing a potential existential calamity of seismic proportions as a result of the changes to the tax regime brought about by the Finance Act 2018.” Dubai and Seychelles are already taking advantage of the situation.

And as far as the OECD is concerned, we are still not out of the woods. We will have to review the excluded treaties (to which we have been reluctant to apply the principal purpose test) to bring them up to the G20’s minimum agreed standards by the end of 2018. Another issue is the discriminative tax rate where certain companies pay a maximum effective tax rate of 3% while other companies are paying 15%. This is the kind of preferential tax treatment that the OECD and the EU consider as a “harmful tax practice” and brand the countries as tax havens.

We had hoped that these issues would have been taken up at the two-day ‘Mauritius International Financial Centre-Forward Looking’ conference, 19 - 20 September 2018 at Intercontinental Mauritius Resort, especially in the context of the country’s abysmal failure to clear the Eastern and Southern Africa Anti Money Laundering Group evaluation process, in respect of compliance with and effectiveness of international anti money laundering standards. And, we are sure the authorities will soon come forward with the appropriate financial sector strategies and measures to counter the negative impact of international pressures on the development of our financial business.
“The financial sector needs a meaningful blueprint not a damp squid."