Key Changes in VAT – Mauritius Budget 2025–26

In the 2025–2026 National Budget, Finance Minister Dr. Navin Ramgoolam has introduced several significant changes in VAT (Value Added Tax) system. While the general VAT rate remains unchanged, various measures aim to ease the cost of living, enhance compliance, and modernize VAT administration.

New Zero-Rated VAT Items

To help reduce the cost of essential goods and services, several items will now be zero-rated for VAT purposes. Here are categories of changes in VAT:

• Fruit and vegetable purées for infants
• Canned vegetables (e.g., tomatoes, mushrooms)
• Frozen packed vegetables (e.g., potatoes, beans, spinach, mixed vegetables)
• Hairdressing services
• CCTV system cameras

This decision reflects the government’s prioritisation of consumer welfare over raising revenue through a higher VAT rate.

Implications for Businesses Selling Newly Zero-Rated VAT Products

1. Pricing and Consumer Demand

• Businesses will no longer charge VAT on sales of these items, resulting in lower prices for consumers. This can boost demand, potentially increasing sales volumes, especially for price-sensitive goods such as basic food items.
• The reduction in price should be passed on to consumers, as the VAT previously embedded in the price is now removed.

2. VAT Registration and Compliance

• Businesses that supply only zero-rated goods and services are not required to register for VAT, regardless of their turnover. This reduces administrative and compliance burdens for small businesses focused exclusively on these categories, those changes in VAT.

3. Input VAT Recovery

• VAT-registered suppliers of zero-rated goods/services can claim back input VAT paid on purchases and expenses related to these supplies, such as raw materials, packaging, equipment, or capital goods.
• This enhances profit margins, as input VAT is fully recoverable, while no VAT is charged on the final sale.

5. Sector-Specific Considerations

• Hairdressing Services: This is a notable shift, as personal services are rarely zero-rated. Hairdressers will not charge VAT, which could make their services more competitive and accessible, especially for lower-income customers.
• CCTV Camera Retailers/Installers: Zero-rating CCTV cameras may stimulate demand from both businesses and households, especially as security concerns rise. Importers and retailers can claim input VAT on their costs, improving margins or enabling more competitive pricing.

VAT Registration Threshold for Businesses Lowered to Rs 3 Million

Significant changes are being introduced regarding Value Added Tax (VAT) registration requirements for businesses. Previously, businesses were compulsorily required to register for VAT if their annual turnover of taxable supplies exceeded Rs 6 million.

However, this threshold is being lowered. As from October 1, 2025, businesses will be compulsorily required to register for VAT purposes upon making a turnover of taxable supplies exceeding Rs 3 million.

This measure means that businesses with an annual turnover of taxable supplies between Rs 3 million and Rs 6 million, which were previously not required to register for VAT, will now fall under the compulsory registration requirement. According to one source, this change is viewed as a means to raise VAT revenue and expected to bring many small and medium-sized enterprises (SMEs) into the VAT system. The requirement applies to businesses making taxable supplies.

Key VAT and Tax Changes on Motor Vehicles

The Mauritius Budget 2025-2026 introduces significant changes to VAT and excise duties on a wide range of vehicles, including passenger cars, 4x4s, pick-ups, trucks, vans, and buses. These measures, designed to tackle road congestion and the national trade deficit, impact both individual consumers and commercial entities. Below are the key points regarding these tax revisions:

1. Excise Duty on Motor Vehicles:

Effective from 6th June 2025, the rates of excise duty and customs duty on conventional vehicles are being increased, ranging from 45% to 100%

The excise duty on hybrid and electric vehicles is being re-introduced, specifically:

• Electric cars up to 180 kW will be subject to 15% excise duty, and those above 180 kW to 25%.

• Non-Plug-in Hybrid cars will have rates from 25% to 75% based on engine capacity, while Plug-in Hybrid cars will have rates from 15% to 55%.

• Other hybrid and electric vehicles (double space cabin, single space cabin, vans, private buses) will also see new excise duty rates applied.\

• The Negative Excise Duty Scheme for electric vehicles will end on 30th June 2025 and will not be renewed.

A transitional provision allows vehicles already in a bonded warehouse, shipped, or with an import permit issued as of 5th June 2025 to use the previous rates if cleared by 30th June.

2. Registration Duty on Vehicles:

• Effective from 1st July 2025, the registration duty on the sale and transfer of domestic pre-owned vehicles will be abolished.

• The registration duty on first registration in Mauritius will be increased by 30% with effect from 1st July.

3. Motor Vehicle Licence:

• Effective from 1st July 2025, the annual Motor Vehicle Licence (MVL) also known as “Declaration”, fees will be increased. The increases vary by vehicle type and engine capacity, ranging from Rs 200 to Rs 4,000.

• The 50% subsidized rate of Motor Vehicle License applicable for hybrid and electric vehicles will be abolished, aligning their fees with corresponding conventional vehicles.

VAT Refund and Exemption Changes

End of VAT Refund Scheme for Residential Construction

The VAT Refund Scheme applicable to the construction of residential buildings or the purchase of residential units from developers will end on 30 June 2025 and will not be renewed.

However, small planters will benefit from VAT refunds on harvesting services, supporting the local agricultural sector. If you’re interested in entering this field, you can learn more in our guide on how to start an agricultural business in Mauritius.

Extension of VAT to Digital Services

Starting 1 January 2026, specified digital or electronic services offered by foreign suppliers will be subject to VAT, aligning Mauritius with international digital tax practices.

VAT on Pleasure Craft Operators

A Pleasure Craft Licence (PCL) is issued for any boat, craft or recreational platform used for sport fishing, water sports, or general leisure.

Holders of a Pleasure Craft Licence will be compulsorily required to register for VAT if the craft is used for commercial purposes.

Reforms to VAT Exemptions for Smart Cities

VAT exemptions on buildings and infrastructure within Smart City projects will be removed, except for:

• Construction of public transport stations or terminals
• Projects under the National Regeneration Programme

Conclusion: Key Shifts in Mauritius’ Taxes

The 2025-2026 Budget brings big changes to Mauritius’ VAT and vehicle taxes. The goal is to lower living costs for people and improve how taxes are collected.

For consumers, some essential items like infant purées and hairdressing services will now be VAT-free, making them cheaper. However, cars and other vehicles will become more expensive due to higher duties and fees, which aims to reduce traffic and help the country’s finances.

For businesses, those selling the newly VAT-free goods will find it easier to comply and can claim back VAT on their costs. But many more small and medium businesses will now need to register for VAT, and digital services from abroad will also be taxed. New rules also affect pleasure craft operators and Smart City projects.

Overall, everyone in Mauritius, from shoppers to business owners, needs to understand these new rules. They will change how you buy, sell, and run your business, requiring smart planning to adapt to the island’s updated tax system.