Editorial
In many ways, the past few years have felt like staring into an abyss—not only due to our local political dynamics, but also because the world has been relentlessly turbulent. A devastating pandemic, rising geopolitical tensions, senseless wars, and the ever-looming spectre of a global recession have all contributed to a climate of uncertainty.
Against this backdrop, I appreciated the Prime Minister’s candour: there is no magic wand. Prosperity will not come overnight.
The first Budget Speech from this new government was measured, sombre, and grounded in realism. The message was clear — rebuilding will take time. Three years, the Government hopes.
We already had a foretaste of the challenges ahead with the "State of the Economy" report presented in December 2024. The document laid bare some troubling figures: soaring public sector debt, widening budget and trade deficits, and the shadow of a sovereign rating downgrade.
The 2025/2026 Budget Speech rests on three stated pillars: economic renewal, a new social order, and fiscal consolidation.
On economic renewal, the Government’s plan to tackle the acute labour shortage with more agile immigration policies and a revamped diaspora scheme is welcome. The shift toward investment-led growth, especially in the green and blue economies, signals an intent to pivot from consumption to production. A sustainable blueprint for the tourism sector is not just welcome—it is urgent (hello, e-gates!). Promising developments are also afoot in the financial services sector, including proposals for bullion banking, digitised trade finance, and streamlined licensing for the wealth management industry.
The new social order leans on strengthening the education system, shifting healthcare from a treatment-based model to a prevention-first approach, and promoting inclusion, equity, and safety.
But the most delicate pillar—arguably the most crucial—is fiscal consolidation. Reining in public spending must go hand in hand with economic growth. Accountability, transparency, and efficiency—concepts that should be baked into governance by default—must now be embedded in law or process. The unpopular CSG (Contribution Sociale Généralisée) will be gradually phased out. Allowances tied to it will end by 2027, with the revenu minimum garantie of Rs 20,000 maintained for full-time employees until at least 30 June 2027.
On the tax front, key measures include:
- (Re)introduction of excise duty on hybrid and electric vehicles;
- A 30% increase in registration duty for first-time vehicle registrations (offset by the abolition of duty on transfers of domestic pre-owned vehicles);
- Lowering the VAT registration threshold to Rs 3 million (as from 1 October 2025);
- VAT applied to specific digital and electronic services starting 1 January 2026;
- Simplification of personal income tax bands to:
▪ 0% (up to Rs 500,000)
▪ 10% (next Rs 500,000) (excluding young persons between 18 and 25 years old earning up to Rs 1m annually, who will be exempted from income tax)
▪ 20% (above Rs 1 million)
These changes are expected to remove 44,000 individuals from the tax net and reduce tax liability for 75,000 more; - Introduction of an Alternative Minimum Tax of 10% on book profits on companies (excluding global business companies and exempted companies) operating in the following sectors: hotels, insurance companies, financial intermediation, real estate-related activities and telecommunications;
- Implementation of the global minimum tax (15%) in line with BEPS Pillar 2 on income derived as from 1 July 2025;
- Discontinuation of certain fiscal incentives for smart cities;
- Hike in registration duty and land transfer tax to 10% for non-citizens acquiring EDB scheme residential properties or apartments;
- A Tourism Fee of EUR 3 per tourist per night at designated tourist accommodation establishments;
- Allowing corporates to spend up to 50% of their CSR Fund; and
- No increase in the VAT rate.
A “solidarity levy”-style fair share contribution will be introduced for three years from 1 July 2025 (perhaps unsurprisingly, banks are bearing the brunt of the tax hikes). It’s worth noting that the design of this measure appears calibrated to limit impact on the global business sector and expatriates:
- 15% of chargeable income (plus domestic dividends) for individuals earning an annual net income exceeding Rs 12 million, increasing to 20% for those earning over Rs 24 million annually;
- Up to 5% for domestic enterprises and banks (on their segment B income) with chargeable income above Rs 24 million;
- An additional 2.5% levy on domestic operations (segment A income) of banks.
Two interesting tax measures announced were the reduction in assessable years to just two and the requirement for businesses receiving at least 50% of their annual turnover in foreign currency to pay their tax in foreign currency.
Numerous blueprints have been promised. But as always, the proof of the pudding will be in the eating. This was not a Budget designed to “faire la bouche doux”—far from it. But neither was it the austerity budget many feared.
Or perhaps I’m being magnanimous as I peer across the long bridge that stretches from abyss to prosperity.
Johanne Hague, Managing Director, CMS Prism
5 June 2025
