Singapore could follow Mauritius as tax haven for FDI

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New Delhi, Dec 8: The proposed comprehensive economic co-operation agreement (Ceca) between India and Singapore would include a revamp of the double taxation avoidance treaty (DTAT) on the lines of the treaty with Mauritius.

The idea is to establish another major tax-saving route for foreign investors in the Indian economy, a senior government official told FE. Mauritius tops the foreign direct investment (FDI) chart in India accounting for 36% of the total inflows, thanks to DTAT.

“Singapore’s strong financial services sector makes it attractive for investors. Given that a large number of multinational corporations have already made Singapore the hub of their financial operations, the DTAT with that country would need to be restructured to spur foreign investment,” an official said.

The government is making all efforts to conclude the Ceca with Singapore , including a free trade agreement, ratified by the year-end, officials said. India would, however, resist Singapore’s demand for product-specific rules of origin for 480-odd items of trade under the proposed FTA. “We will have to be careful about ROOs in the manufacturing sector since Singapore’s strength lies in trading and not in manufacturing,” an official said.

A more effective DTAT with Singapore assumes significance as it implies that the government is no longer unsure of the legal tenability of such treaties. Reports suggesting a relook at the DTAT with Mauritius had resulted in a dip in FDI flows from that country in the second half of 2003. For a brief while, the US had surpassed Mauritius as the top FDI investor in India.

But a Supreme Court ruling which said that certificate of residence in Mauritius was sufficient evidence for availing of tax benefit accelerated the FDI flows from Mauritius again, helping it to regain the number one slot in India’s FDI chart.

Currently, India has DTATs with as many as 67 countries including the US and the UK. FDI inflows into India rose by 68% to $2.38 billion in the first half of the current fiscal.

The inflows are expected to be $5 billion in the whole year, as against $2.8 billion last year.