Operation of Tax Deduction at Source (TDS) by Ministries Government Departments

 

  1. GENERAL

     

      1. The purpose of this leaflet is to give Ministries, Government Departments, Local Authorities, Statutory Bodies and the Rodrigues Regional Assembly an insight into the operation of TDS with particular emphasis on payments made for the procurement of goods and services and payments made to a non-resident for any services rendered in Mauritius. It is worth noting that there is already on the MRA web site http://www.mra.mu notes on the operation of TDS.

         

      2. Under the system of Tax Deduction at Source (TDS), the payer is required to deduct tax at the time the payment is received by or credited to the account of the payee. This is similar to the PAYE system whereby tax is deducted by the employer at the time emoluments are made available to the employee.

         

        TDS is an advance payment of tax which the payee may offset against his tax liability for that income year. Any tax deducted in excess of the tax payable will be refunded to the payee.

         

    Note: The contents of this leaflet have no force of law.

     

  2. TYPES OF PAYMENTS SUBJECT TO TDS

     

    The types of payments which are subject to TDS and the withholding rates of tax applicable to each type are given in Table 1.

    TABLE 1

      Amount or sum made available to the payee by way of: Rate of Tax(%)

    1

    Interest payable by any person, other than by a bank or non-bank deposit taking institution, under the Banking Act, to any person other than a company resident in Mauritius

    15
    2

    Royalties payable to –

    1. A resident
    2. A non-resident

    10
    15

    3

    Rent

    5

    4

    Payments to contractors and sub-contractors

    0.75

    5

    Payments to providers of services as specified in the Fifth Schedule to the Income Tax Act

    3

    6

    Payment made by Ministry, Government Department, Local Authority, Statutory Body or the Rodrigues Regional Assembly on contracts, other than payments to contractors and subcontractors and payments to providers of services specified in the Fifth Schedule –

    1. For the procurement of goods and services under a single contract, where the payment exceeds 300,000 rupees;
    2. For the procurement of goods under a contract, where the payment exceeds 100,000 rupees; or
    3. For the procurement of services under a contract, other than telephone, insurance, postal, air travel and hotel services, where the payment exceeds 30,000 rupees.

     

     

    1

    1

    3

    7

    Payments made to the owner of an immovable property or his agent pursuant to section 111B(g) of the Income Tax Act

    5

    8

    Payments made to a non-resident for any services rendered in Mauritius pursuant to section 111B(h) of the Income Tax Act

    10

     

  3. OPERATION OF TDS BY REFERENCE TO TABLE 1
    1. TABLE 1 - Item 1 – Interest payable to non-residents

       

      Any amount of interest payable by any person other than an individual, a bank or a non-bank deposit taking institution, under the Banking Act, to any person other than a company resident in Mauritius is subject to TDS at the rate of 15%.

       

      If the recipient of the interest is a resident of a foreign country with which Mauritius has a tax treaty, the rate is 15% or the rate specified in the treaty, whichever is the lower. (Please see Annex 1- for definition of "resident", Annex 3 for the countries with which Mauritius has a tax treaty and Annex 4 for "Highlight of Tax Treaties")

       

      Tax deducted from interest payments to a non-resident is final, i.e. the recipient of the interest is not required to submit a return in respect of that income at the end of the income year.

       

      For Government Ministries/Departments, interest payments are centralised at the level of the Accountant-General so that most Ministries or other Government Departments will not be concerned by that item.

       

    2. TABLE 1 - Item 2 – Royalties

       

      Royalty payable to a resident is subject to TDS at the rate of 10%, while royalty payable to a non-resident is subject to TDS at the rate of 15%.

       

      If the recipient of the royalty is a resident of a foreign country with which Mauritius has a tax treaty, the rate is 15% or the rate specified in the treaty, whichever is the lower. (Please see Annex 1- for definition of "resident", Annex 3 for the countries with which Mauritius has a tax treaty and Annex 4 for "Highlight of Tax Treaties")

       

      Similar to tax deducted from interest payment, tax deducted from payment of royalty to a non-resident is final. The recipient of the royalty payment is not required to submit a return in respect of that income at the end of the income year.

       

    3. TABLE 1 - Item 3 – Rent

       

      Rent means any payment, made by any person other than an individual, for the use of any land or building together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee.

       

      Rent also includes any premium or other consideration for a lease. TDS at the rate of 5% is applicable on the rent payable.

       

    4. TABLE 1 - Item 4 – Payments to contractors and subcontractors

       

      Types of contracts subject to tax deduction at source are:

      1. Civil construction work including construction or repair of any building, road or other structure;
      2. Execution of any works contract and includes mechanical or electrical works
      3. Supply of labour for carrying out works in respect of civil construction.

      Payments to contractors or sub-contractors, by any person other than an individual, are subject to TDS at the rate of 0.75%. There is no threshold for application of TDS.

       

    5. TABLE 1 - Item 5 – Payments to providers of services

       

      TABLE 2 – (Fifth Schedule to the Income Tax Act)

      Services other than services provided by a non-resident

      Architect

      Attorney/Solicitor

      Barrister

      Engineer

      Land surveyor

      Legal consultant

      Medical service provider

      Project manager in the construction industry

      Property valuer

      Quantity surveyor

      Payments made by any person other than an individual for services rendered by the service providers listed in the above table are subject to TDS at the rate of 3%. There is no threshold for application of TDS.

       

      Other persons (for example a notary) not appearing in Table 2 above, and providing services to Ministries, Government Departments, Local Authorities, Statutory Bodies or the Rodrigues Regional Assembly are subject to TDS at the rate of 3% for services rendered by them where the payment exceeds the prescribed threshold of Rs. 30,000 (Table 1 - Item 6c).

       

      However, if the service provider is a non-resident then TDS at the rate of 10% will apply (Table 1 - Item 8) (Please see the definition of "resident" in Annex 1).

       

      We have given three examples on the application of TDS on payment for services. (Please see examples 1, 2(a) & 2(b) in Annex 5).

       

    6. Table 1- Item 6-Payments for procurement of (a) goods and services under a single contract (b) goods and (c) services (other than payments to contractors & subcontractors (item 4 above) and payments to providers of services (item 5 above)

       

      All Ministries, Government Departments, Local Authorities, Statutory Bodies or the Rodrigues Regional Assembly are concerned with the provision of this item. They are required to apply TDS on payments made for the procurement of goods and services exceeding the prescribed thresholds as set out in Table 3 below. TDS should not be applied where the payment is below the threshold, irrespective of the contract value.

      TABLE 3

      Payment exceeding Tax rate
      (a) Rs 300,000 for the procurement of goods and services under a single contract 1%
      (b) Rs 100,000 for the procurement of goods under a contract 1%
      (c) Rs 30,000 for the procurement of services under a contract, other than telephone, insurance, postal, air travel and hotel services 3%

       

      (Please see examples 3 and 4 in Annex 5)

      The following is to be noted:

      1. Where payments are made to a contractor or sub-contractor (Table 1- item 4) or to a provider of service (Table 1- item 5), TDS is applicable at the rate of 0.75% and 3% respectively, irrespective of the amount payable.

         

      2. TDS is applicable on the amount including other taxes e.g. excise duty but before VAT (i.e VAT exclusive).

         

      3. "Goods and services under a single contract" has to be interpretedas goods andservicesprovidedunder one and the same contract and not where several contracts have been grouped together. TDS is applicable where payment under the single contract exceeds Rs 300,000.

         

      4. If a contract is mainly for services but there is a small component of goods, the contract will still be considered as a contract for services e.g. repairs of equipment.

         

      5. It is to be noted that payments for services such as telephone, postal, air travel and hotel services are not subject to TDS (Table 1 item 6 (c)). For practical reasons, it has been decided not to apply TDS on payments for utilities and continuity of service such as electricity, water and newspaper.

         

      6. TDS is also not applicable on purchase of goods directly from suppliers abroad.

       

      For your guidance, a list of expenditure (please see Annex 6) has been compiled by the Finance Cadre to Ministries, with a corresponding note as to whether TDS is applicable or not in each case.

       

    7. Table 1- Item 7 – Payments made to the owner of an immovable property or his agent

       

      Payments made by tour operators, etc. to the owner of an immovable property or his agent are subject to TDS at the rate of 5%.

      Ministries and Departments will not be concerned by this item.

    8. Table 1 - Item 8 – Payments made to a non-resident for any services rendered in Mauritius

       

      Payments made to a non-resident for any services rendered in Mauritius are subject to TDS at the rate of 10%.

       

      The following is to be noted:

      1. If the person rendering services in Mauritius is resident of a country with which we do not have a tax treaty, TDS would apply irrespective of the duration or amount of the contract. (Please see example 5 in Annex 5 )

         

      2. If the person is resident of a country with which we have a tax treaty and the project/contract is of duration of more than 6 months, TDS will apply on the payment, irrespective of the amount. (Please see example 6B in Annex 5 )

         

      3. If the person is resident of a country with which we have a tax treaty and the services rendered in Mauritius are for less than 6 months, TDS will not apply . (Please see example 6A in Annex 5)

        It is to be noted that in some cases the project/ contract may be of duration ofless than 6 months, but if the non-resident has an arrangement in Mauritius that constitutes a permanent establishment the non-resident will be liable to tax in Mauritius. In such a case TDS will be applicable. (Please refer to Annex 1 for definition of "resident", Annex 2 for definition of "permanent establishment" and Annex 3 for the countries with which Mauritius has a tax treaty)

      4. The 10% rate is applicable throughout the contract if the service provider is a non-resident at the start of the contract.

       

  4. GENERAL INFORMATION ABOUT TDS
    1. Minimum amount for application of TDS

       

      What is the minimum amount for applying TDS?

       

      TDS is not applicable where the amount of tax to be deducted is less than 500 rupees. The payer will however be required to submit an annual TDS return. See paragraph 4.4

       

    2. Remittance of TDS to the MRA

       

      When and how will the tax deducted at source be remitted?

       

      Any tax deducted at source is required to be remitted by the 20th of the next month. The remission shall be made electronically or in such other manner decided by the Director General. The remittance form is enclosed at Annex 7.

       

    3. Statement of Income Tax deduction

       

      How will the payee know about tax deducted at source from his income?

       

      The payer shall issue a statement of income tax deduction in respect of the preceding income year to the payee by 15 February every year, showing the total payment made to the payee and the tax deducted therefrom. This statement has been prescribed in Income Tax Regulations and is enclosed at Annex 8.

       

    4. Annual TDS return

       

      Is the payer required to furnish a statement to the MRA?

       

      The payer is required to furnish by 15 February every year the following:

      1. Where TDS has been applied, a statement giving particulars of the payee, the amount made available to the payee and the tax deducted therefrom. This statement has been prescribed in Income Tax Regulations and is enclosed at Annex 9. It can be made through Electronic Filing.

         

      2. Where TDS has not been applied because the amount of TDS was less than 500 rupees, a statement giving the particulars of the payee and the amount or sum made available.

       

    5. Direction not to effect TDS

       

      When is a payer not required to deduct tax at source?

       

      If a payee proves to the satisfaction of the Director General that he is not chargeable to income tax for a particular year, the Director General may direct the payer in writing that no tax shall be deducted from payments made to the payee for that year.

       

    6. TDS paid by payer recoverable from payee

       

      Is the payer required to pay the tax which he failed to deduct at source? Can he recover this amount from the payee subsequently?

       

      Yes. If the payer fails to deduct tax at source in accordance with the provisions of the Income Tax Act, he shall be personally liable to pay the said tax to the MRA. However, he is entitled to recover from the payee the tax which he failed to deduct.

       

    7. Penalty for late payment of TDS

       

      Is there any penalty for late payment of tax deducted at source?

       

      Yes. If the payer fails to pay in time, the tax required to be deducted at source, he shall be personally liable to pay, in addition to tax, a penalty equal to 5% of the amount of tax remaining unpaid.

       

    8. Interest on unpaid TDS

       

      Is there any interest on unpaid TDS?

       

      Yes. If a person fails to pay any tax required to be deducted at source, he shall be liable to pay interest at the rate of 1% (of tax remaining unpaid) per month or part of the month during which the tax remains unpaid.