Mauritius, the island nation that accounts for the second-largest FDI, has sought a line of credit and more investments from India as it gets ready for implementation of the revised tax treaty from April 2017.
Mauritian Minister of Finance and Economic Development Pravind Kumar Jugnauth yesterday met Finance Minister Arun Jaitley to discuss economic ties between the two countries and avenues to deepen co-operation.
“Now that the tax treaty is revised, Mauritius is seeking a package in the form of line of credit and more investments from India to boost its economy and generate employment,” an official told PTI.
Following the decade-long negotiations, India in May reworked its tax agreement with Mauritius to introduce a levy to prevent investors using the island nation as a shelter to avoid taxes.
The 1983 Double Taxation Avoidance Convention (DTAC), which helped channelise a third of the India’s foreign direct investment in the past 15 years, was revised on May 10 to impose short-term capital gains tax at half the rate during the two-year transition from April 1, 2017.The levy is currently at 15 per cent. The full rate will kick in from April 1, 2019.
This is the first visit of Mauritian Finance Minister after the revised treaty was signed between the two countries.
The official said after the revised DTAC kicks in, lesser number of companies are likely to route their funds into India using the Indian Ocean island nation and some could shut shop as well.
The LoC as well as strengthening of ties is a political call to be taken at the highest level, he said.
“It is a call to be taken on how well we want to manage our neighbours. One of the deciding factors will be China’s growing influence in the region, particularly among the nations that were considered friendly to India,” the official added.
India and Mauritius had been in negotiations about revising the three-decade-old tax treaty since 2006 to check misuse by some investors.
More than a third of the $278 billion India has received in foreign direct investment in the past 15 years came via Mauritius.
The two nations in 1983 had signed the treaty seeking to eliminate double taxation of income and capital gains to encourage mutual trade and investment.
Mauritius, which has 43 double taxation treaties with different nations that allow companies registered in the two countries to pay taxes in only one, is seeking to reinvent itself as an investment destination and a financial services hub.