After FATF, Mauritius needs to fast track its exit from the EU black list and UK list of highrisk countries, says Rama Sithanen. Alongside, the industry must work in partnership with government to restore its image through a targeted joint marketing and PR campaign, to highlight the significant progress achieved within the Mauritius International Financial Centre.

Now that our jurisdiction is no longer subject to increased monitoring and has been removed from the grey list of the FATF, what should be done by the industry now to restore our image?
The industry is still in celebratory and congratulatory mood following the exit from the FATF list. Kudos to all those who have been steadfast, diligent, timely and resilient to have Mauritius removed from the grey list. Now we should fast track the exit from the EU black list and the UK list of high-risk countries so that the international community can regain full confidence and trust in the Mauritius International Financial Centre (MIFC). The industry has to work in partnership with government to help regain trust and confidence and reposition global business vis-à-vis institutions, corporates and other partners that use or could use our juris- diction to conduct their activities.

A well calibrated and targeted joint marketing and PR campaign that highlights the significant progress made in terms of legal, regulatory and operational improvements will help us recapture some of the investments that have gone elsewhere during the difficult period and bring new investment activities to our shores. All management companies have already reached out to their business partners to disseminate the FATF exit. Companies that have international footprint should leverage their global presence to help Mauritius spread the news. The industry should also work closely with the authorities to ensure that the bold policies, measures and standards implemented to exit the FATF list remain fully operational, effective and sustainable as we need to draw the lessons so that we do not re-enter that list or any other list of standard setting institutions.

For some time now, you have gone through a rethinking process of the Global Business and what should be the new shape of this important pillar of the economy. Why is it important to revisit our business model?
Let us be frank. The business model we created some 30 years back has served us well in terms of economic diversification, structural transformation, sustained growth, job opportunities, tax revenues and balance of payment support. We were also opportunistic in seizing the Indian opportunities as a launchpad. The combined direct, indirect, induced and catalytic effects of the financial sector including global business is much higher than the figure of around 11% to 12 % of GDP given in the official statistics. Not dissimilar to tourism with however higher value added as salaries and profits are significantly higher.

However, we are nearing the end of a cycle. The international eco-system has changed drastically with the stringent regulatory and compliance requirements of bodies such as the FATF on money laundering and fighting terrorism, the strict policies on curbing harmful tax practices, the modification of the DTAA with India and some African countries, the adoption of Base Erosion Profit Shifting (BEPS) principles and practices, the anathema of shell companies, the necessity to have economic and commercial substance and now the introduction of the global minimum tax of 15%, and the imperative to pay taxes where economic activities take place rather than where structures are domiciled. Not to forget the constant, relentless and at times unfair press coverage on the reputation and brand of our IFC by some NGO’s and investigative organizations.

How do you view the post-FATF Mauritian jurisdiction? What should be done?
All these fundamental changes mean that the foundation upon which we have built our strategy has been shaken to the core and that tax arbitrages and treaty benefits are likely to play a far lower role in attracting investments to our country. Also, our competitive advantages have been eroded with rising costs while the 40% tax cliff is a deterrent to attract talent.

It is key for Mauritius to reshape its strategy in global business and to adapt its business model to this new environment so as to mitigate risks, retain what is good, reform what is necessary, shun what is problematic, so as capture new opportunities ahead of competing jurisdictions that are slow to react. It seems obvious that we must retrofit the global business for it to remain a main economic pillar. In addition, the mix of our services/products has not changed significantly since the early 90s.

We should concentrate on high end products with good value addition and meaningful economic and commercial substance. A combination of consolidation, diversification, transformation, better infrastructure, innovation, technology, human capital and talent, research and development and smart marketing and communication to bolster our image and reputation, will help shape a new ecosystem that will be both competitive and attractive. Scale, size, scope is required to compete effectively on a global level, be more compliant, invest in technology and innovation and attract domain talent – both international and the diaspora- at the high end of the supply chain.

We should update the McKinsey report, review its analytical gaps and include factors that have affected the industry since 2018 and produce a new action driven and implementable blue print for global business for the next 10 to 15 years. More importantly there should be a clear vision and a strong leadership not only to make bold changes but also to execute the recommendations. Decisive leadership and effective implementation are two major tough nuts that must be cracked to succeed. This is key to significantly increase the share of financial services/ global business in the economy, in tax revenue and in the balance of payments and provide better paid, more fulfilling careers while helping to upgrade Mauritius to a high-income country.

It’s almost five years since significant amendments were brought by Indian authorities to the DTAA between Mauritius and India. We know that most of the attractive clauses, which were the unique selling points of our IFC were removed. Overnight, we have ceased to be attractive to foreign investors using the Mauritian platform to invest in India, with the result that a lot of management companies have changed their marketing strategy, focusing henceforth on African markets. Do you think that management companies can still afford to be India-centric?
The most important clause that was taken away from us is the capital gains tax on equity. There are however some clauses on withholding tax on interest and capital gains on debt products that remain attractive. Unfortunately, India has not changed its treaties with some other countries even if there was an understanding that there will be a level playing field. This puts us at a competitive disadvantage. Furthermore, many bilateral treaties have been modified to include anti avoidance and BEPS clauses, thus making it difficult to enjoy treaty benefits without demonstrating substance requirements and that the core income generating activities are carried out in Mauritius. The competition landscape has also changed with Gujarat International Financial Tech-City (GIFT) in Gujarat competing head on with Mauritius to lure India destined funds, especially with all the attractive tax advantages and regulatory facilities given by the Indian government to accelerate the development and growth of GIFT as an international financial centre.

In spite of these setbacks, India remains a key market for our IFC because of its huge potential to attract international investment in almost all sectors, the size of the funds, their value proposition, and the fact that it is one country compared to 54 different countries in Africa. In addition, the business partners understand Mauritius very well, are cognizant of the regulatory framework and know the professionalism of our people who have gained experience and acquired expertise in dealing with India over 30 years now.

We have no other choice than to diversify in terms of geographical footprint, wider range of products and broader scope of services. India will remain a key part of the equation for a long time. This is not incompatible with developing and growing our business with the African continent. One must be conscious that almost all IFCs like Mauritius have adopted a strategy of providing niche services to specific markets.

Mauritius has only two potential geographical footprints where we can compete, India and Africa. In terms of value added and economic substance, India is still well ahead of Africa. Value added is more important than the number of companies incorporated. While there are some Development Financial Institutions (DFIs) and large corporates that invest sizeable funds in Africa, most large funds structured and domiciled in Mauritius are still India focused. There is also stiff competition for investment into Africa from other jurisdictions such as Jersey, Netherlands, UK, Singapore, Morocco, South Africa. And now Rwanda. In addition to investments that go direct into Africa and do not use an intermediary platform. We have no choice than to focus on both India and Africa.

The Pandora papers have shown that our jurisdiction is still targeted with money-laundering cases exposed in some obscure tax-haven countries involving local VVIPs. We are tempted to say that after FATF, there is still a long way to go for our IFC to cease to be a tax haven.
While we are not perfect and always subject to abuse and misuse by unscrupulous operators and individuals, and regulatory lapses and as such must always be very vigilant in terms of compliance, due diligence and KYC, Mauritius is not a tax haven. We have a corporate tax of 15 %, lowered to 3 % for companies that meet some substance requirements. Our legislation is state of art and has both control and management clauses and substance requirements. We are not a country that relies almost exclusively on global business like some small islands in the Caribbean. We have a broad based and well diversified economy. Mauritius is one of the rare countries to be compliant or largely compliant with 39 out of the 40 FATF recommendations. These are features of a sound and reputable IFC. Of course, we could have avoided some adverse publicity by being more diligent and careful before accepting some dubious clients.

However, the overwhelming majority of business and investment in our jurisdiction is lawful and clean. The Mauritians who are using far away financial centres have no- thing to do with the image and reputation of Mauritius as an IFC. Without appearing defensive, we also have to make the distinc- tion between what is legal and what is moral and ethical. Undoubtedly those in high public offices should not use tax havens to either hide their assets or lower their tax obligations as they are under considerable public scrutiny. Here, ethical behaviour is very important. For businesses, they have to comply with the laws of the countries where they operate. Regulators must ensure that this is the case.