Harish Gupta. NEW DELHI
Irrespective of nation-wide concerns over black money stashed abroad and Indian governments repeated assurances to bring it back, Mauritius has refused to yield. The Mauritius authorities have ducked talks scheduled in July and signaled that the discussions will take place sometime in August- September.
Since Mauritius is the most crucial destination in the entire gamut of Foreign Direct Investments (FDI) and Foreign Institutional Investments (FII) due to its massive size, the Indian authorities had said that talks to re-negotiate controversial Double Taxation Avoidance Agreement (DTAA) will take place in July. Even Finance Minister Pranab Mukherjee had stated on record that talks are scheduled for July. But these have been postponed again at the instance of the Iceland country. The government has indicated that it would be in a position to hold the same in August-September now.
Highly placed sources in the finance ministry said that talks will now be held sometime in late August or early September to amend the DTAA.
The tiny scenic island which is a leading Off-Shore Financial Centre (OFC) has given Indian regulators nightmares. As much as 42% ($55 billion) of the entire foreign investments whether in the FDI or FII ($130 billion) has been routed through Mauritius between 2000-2011.
But what has shocked Indian agencies is that investments from Mauritius has risen to more than 80% during the first two months of the current financial year. Despite huge ruckus in India and ED and CBI officials rushing to the tax-heaven country, the flow of investments from Mauritius has beaten 17 other known tax heaven countries.
Investments from Mauritius broke all records in foreign investments as it sent more than $2.1 billion (Rs 9300 crores) to India compared to other 17 tax-heaven countries put together. They together accounted for a mere $1.8 billion (Rs.7520 crores). The other 17 countries are Switzerland, Singapore, Cyprus, Caymen Islands, British Virginia, Luxembourg, Panama, British Isles, St. Kitts, Bahamas, Iceland, Seychelles, Isle of Man, Virgin Island, Liechtenstein, UAE and Hong Kong. While DTAA has been re-negotiated with some of these countries, the process is still on. But foreign investments from Mauritius touching a record high of 80% has surprised investigators.
It may be mentioned that the Narasimha Rao government in 1991 had opened the FII investments route in the wake of the foreign exchange crisis under the DTAA. The DTAA provided that there will be no Capital gains tax on companies/persons who are holding residence permits in Mauritius. Since there is no Capital gains tax in Mauritius, the companies enjoyed huge tax benefits.
The Mauritius government is reluctant to re-negotiate the DTAA as it earns through other means though it doesn’t charge capital gains tax. It did tighten norms for issuance of residence certificate after a hue and cry is raised in India and at one time the authorities even threatened to cancel DTAA suo-moto. Experts questioned the decision of the Indian government not to act when Indonesia which also a similar treaty with Mauritius, canceled it saying investments are nothing but round tripping. Sources in the finance ministry explain that there is a lurking fear that once the DTAA canceled, the FDI will take a big hit and FII will companies will vanish.
