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Mauritius wants economic support after new tax treaty
In return for allowing India to tax investments routed through it, Mauritius wants an economic aid package. With this demand the finance minister of Mauritius, Pravind Jugnauth met Arun Jaitley on Thursday.
In return for allowing India to tax investments routed through it, Mauritius wants an economic aid package. With this demand the finance minister of Mauritius, Pravind Jugnauth met Arun Jaitley on Thursday.
“Mauritius feels that the change in the bilateral tax treaty will lead to flight of companies from Mauritius, which will lead to job losses there and so the demand for economic support,” said a top official in finance ministry, who did not wish to be named.
India is thinking about a line of credit and investments in the island nation to develop infrastructure, keeping in mind, political mileage of having a friendly and stable neighbour. “Mauritius wants India’s help in developing their infrastructure sector. They want India’s promise for sustained direct investment in that country,” said the source quoted above. He added that India wants cordial relations with its neighbours, especially the island nations in the seas around it. “They are strategically placed around India. We don’t want to cede space to other countries to jump in and take advantage of these small nations,” said another source in the finance ministry.
After meeting Jaitley, Mauritian Minister of Finance and Economic Development said the negotiations on Preferential Trade Agreement (PTA) and Comprehensive Economic Cooperation Partnership Agreement (CECPA)are moving ahead. “In fact, there is now a delegation from Indian side visiting Mauritius. There has been a preliminary draft agreement which will need to be further looked up and discussed,” Jugnauth said.
After long-drawn negotiations, the amendment to the 1983 Double Taxation Avoidance Convention was signed by India and Mauritius in May this year. With the changes, India can impose capital gains tax on investments routed through Mauritius. For two years starting April 1, 2017, capital gains tax would be levied at 50% of the prevailing domestic rate and after that, full rate would be applicable.
The renegotiated tax treaty has taken the advantage for foreign companies to open bases in Mauritius for investing in India. This the island country fears will lead to these companies closing down their units, which will lead to job losses.
India received as much as $8.3 billion Foreign Direct Investment (FDI) from Mauritius last fiscal. Mauritius accounted for 33% of the total FDI inflows to India during April 2000 to March 2016.
A large proportion of foreign investment in the stock market comes through companies registered in the Indian Ocean island nation and are exempted from tax in India under the treaty.
