Climate Change and Tax Strategies: A Global Perspective with a Focus on Mauritius

Climate change continues to be one of the most pressing global challenges of our time. It refers to long-term shifts in temperatures and weather patterns, largely driven by human activities such as burning fossil fuels and deforestation. These actions increase the concentration of greenhouse gases in the atmosphere, leading to global warming and more frequent extreme weather events.

The consequences are far-reaching—affecting ecosystems, public health, food and water security, and the global economy. As the urgency to act grows, governments around the world are turning to innovative policy tools to address the crisis.

The Role of Tax Policy in Climate Action

Among the most effective tools in the climate policy toolkit are tax measures. By influencing economic behaviour, tax policies can help reduce emissions, promote clean energy, and fund climate resilience efforts.

Carbon taxes, emissions trading systems, and environmental levies are being used to shift both corporate and consumer behaviour. These instruments make polluting activities more expensive, encouraging the adoption of cleaner alternatives. At the same time, they generate revenue that can be reinvested in green infrastructure, renewable energy, and climate adaptation programs.

Importantly, well-designed tax policies also consider social equity. Measures such as rebates or targeted subsidies can help ensure that vulnerable populations are not disproportionately affected by the transition to a low-carbon economy.

Mauritius Takes the Lead

Mauritius has emerged as a regional leader in climate-responsive fiscal policy. In its 2024/2025 national budget, the government introduced the Corporate Climate Responsibility (CCR) Levy—a bold step aimed at aligning economic growth with environmental sustainability.

This levy imposes a 2% tax on the chargeable income of companies with an annual turnover exceeding MUR 50 million. It applies to a wide range of entities, including domestic firms, sociétés, trusts, and even those operating under Global Business Licences. The scope of the levy is broad, encompassing not just traditional income but also exempt sources such as dividends and capital gains.

By the end of March 2025, the CCR Levy had already generated Rs 2.1 billion in revenue, with Rs 652 million coming from the Global Business sector. These funds are earmarked for climate resilience projects, ecosystem restoration, and sustainable development initiatives across the island.

Building a Carbon Credit Market

In parallel, Mauritius is laying the groundwork for a robust carbon credit trading system. The Bank of Mauritius and the Financial Services Commission are collaborating to establish a framework that supports both blue and green carbon credits. This initiative is part of a broader strategy to position the Mauritius International Financial Centre as a hub for sustainable finance.

Recent amendments to the Financial Services Act have paved the way for a spot commodity market that includes carbon credits. Additionally, the Mauritius Revenue Authority has clarified that the sale of carbon credits is subject to VAT, ensuring transparency and regulatory compliance for businesses engaged in this emerging market.

Looking Ahead

As the climate crisis deepens, the integration of environmental considerations into fiscal policy is no longer optional—it is essential. Mauritius’ proactive approach demonstrates how small island nations can lead by example, using tax policy not only to reduce emissions but also to build a more resilient and sustainable future.