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Today, you will read General Awareness Topic: “Importance of Mauritius for India”
India-Mauritius contacts are maintained since Dutch, French and British occupation. The French colony of Pondicherry played an important role in the development of Mauritius during the French occupation by providing skilled workforce for various projects in Mauritius.
From the 1820s, Indian workers started coming into Mauritius to work on sugar plantations. From 1834 when slavery was abolished by the British Parliament, large numbers of Indian workers began to be brought into Mauritius as indentured laborers. The ship 'Atlas', which carried the first batch of Indian indentured laborers, reached Mauritius on November 2, 1834. This day is now observed in Mauritius as 'Aapravasi Day', a national holiday.
Many global investors prefer to channelize their Indian investments through Mauritius due to the tax benefits coming out of the DTAA (Double Taxation Avoidance Treaty) between the two countries and favorable regulations in the island nation. India and Mauritius are yet to agree on changes to the double taxation arrangements that have seen New Delhi miss out on tax revenues of up to US$600 million annually.
Concerned at the amount of tax revenue lost to Mauritius-based companies under existing arrangements, India is continuing to seek a renegotiated taxation treaty with the island state. Mauritius is coming under renewed pressure from India to renegotiate the double taxation treaty that has been in place between the two countries since 1983.
The first negotiation took place in 2006 and the latest round on 22-24 August 2012, once again without reaching agreement. The impetus for India now is the substantial amount of revenue that is lost annually as companies operating in India channel funds through Mauritius.
As India’s economy slows and international ratings agencies, such as standard and Poor’s, threaten to downgrade India’s credit rating, maximizing revenue is assuming ever greater importance.
In 2012-13 budget, Finance Minister of India announced the proposal to introduce the General Anti Avoidance Rule (GAAR). There was a huge uproar against it, as many thought that such a move would drive potential foreign investors away from India.
GAAR would enable tax officials to probe if a non resident entity, directly or indirectly through a resident Indian, was establishing companies in other countries merely to benefit from their benevolent tax structure.
The discretion to deny such tax benefits rests with taxmen, and experts feel that such sweeping powers could find a number of innocent people caught in its net. A number of countries such as Mauritius, Singapore, many Gulf countries and islands such as the Cayman Islands are investors’ paradises.
Many investors also avail of such havens to either under-invoice or over-invoice their expenses, all of which helps in generating black money or rendering black money white. The G-20 group of nations has been pushing all entities towards such a tax regime, and many developed nations have a strict tax regime.
GAAR is likely to impacts upon Mauritius, which has been the single largest investor into India for much of the last 15 years. The reason for this is the Mauritius-India tax treaty, which allows for tax exemption in capital gains.
As a result, much of the Mauritian investment into India is actually round tripping by Indian companies setting up a Mauritian entity to avoid CGT in India. The GAAR rules however are being interpreted as suggesting that investors into India using the Mauritius route will now be subject to CGT unless they can demonstrate a “substantial commercial presence” in Mauritius.
Therefore, Mauritius had requested India to not apply the proposed GAAR on companies which have been given a tax residency certificate (TRC) by Mauritius. Mauritius has said it is "extra careful" when dealing with fund flows involving Indian entities, as compared to those from other countries.
Besides, Mauritius is more than eager to share details with India about persons and companies suspected of financial irregularities and complies with all such requests, except those found to be 'fishing expeditions' or involving legal implications.
Thus, if GAAR is implemented successfully, it will certainly reduce the ranking of Mauritius in FDI source ranking. Since money routed from Mauritius is just the black money channeled back into the country, it is not an FDI in real sense but the conversion of black money into white without paying the taxes.
Any effort by the government of India supposed to make tax evasion difficult should be a welcome step. However, as India still needs lots of funds, along with making tax evasion tough FDI friendly policies should not be neglected and it must be assured that the genuine investments from Mauritius or any other country are not hampered.