With the world’s most powerful 20 countries deciding to launch a major crackdown on tax havens, question marks are expected to arise on some of India’s biggest foreign direct investment (FDI) sources, including Mauritius and Cyprus.
Mauritius has remained the largest source of foreign investment, with the island nation contributing about Rs 35,000 crore ($7 billion) in FDI inflows during the April- November period and set to exceed the Rs 44,000 crore ($11 billion) FDI received from the tiny island nation during the whole of 2007-08.
An official, who did not wish to be identified, said other tax havens are fast catching up as India’s most favoured FDI sources. Tax havens thrive on secrecy and low tax rates.
In fact, Cyprus is now the eight largest FDI source for India ahead of countries such as France and Germany.
Government officials say a crackdown on Mauritius and other tax havens might have adverse consequences for the countries embattled realty sector as well.
The country received FDI amounting to Rs 17,848 crore in the housing and real estate sector from April 2005 to September 2008, with over 60 per cent of the funds flowing in from tax haven of Mauritius.
Besides, Cyprus, British Virginia and Cayman Islands contributed around 18 per cent towards FDI inflows during the period in the realty sector.
Officials do not rule out new stringent norms to prevent `round tripping’ or “treaty shopping” by Indian entities moving money out of the country and then getting it back into the country.
“There were three major sources – Cyprus, UAE and Mauritius—where the problem of “round tripping” had arisen,” a government source said.