The controversial double tax avoidance treaty between India and Mauritius is likely to survive despite pressure from the income-tax authorities. The pact may be reworked, but not scrapped, thanks to the lobbying by a high-level delegation headed by Mauritius Prime Minister Navinchandra Ramgoolam.
The pact, crucial for foreign institutional investors (FIIs) investing in India, has been facing an uncertain future since the revenue department in the finance ministry is opposed to loopholes that allow exploitation of the pact by intended beneficiaries. Several foreign companies, for example, have invested in India through what is known as the Mauritius route.
It is understood that Mr Ramgoolam discussed the issue with Prime Minister Manmohan Singh and pleaded strongly for status quo. The pact is crucial for Mauritius that is keen to develop itself into a leading financial centre of the world by offering attractively-
low tax rates. Due to treaties like the one with India, a number of FIIs and foreign companies register special purpose vehicles (SPVs) in Mauritius for investment in other countries.
"The two prime ministers (Mr Ramgoolam and Mr Singh) have held discussions on the treaty and we are very hopeful that keeping in mind the current economic realities, the treaty will not be scrapped," said Mauritian minister of public utilities Abu T Kasenally, who was part of the Mauritian delegation.
Substantial amount of foreign investment into India is routed through Mauritius, primarily on the strength of the capital gains exemptions available through this window. Data indicates that Mauritius is the second largest source of foreign investment into India, second only to the US.
Meanwhile, the government of Mauritius is going all out to woo investments from India. Under the new Business Facilitation Act of the country, foreign entrepreneurs can start business activities in the country within three working days on the basis of self adherence to guidelines set by the authorities, which will exercise ex-post control for compliance.
The government of Mauritius does not discriminate between local and foreign investment. Foreigners are allowed to own 100% equity in local companies.
Also, residence permits and work permits for foreign investors and professionals have been combined into an single occupation permit, which is now processed within three working days. "We are seeking investments from India in the area of infrastructure, hospitality, telecom and IT. We are also very keen to attract professionals in the field of IT, construction and telecom.
We need specialist doctors and engineers from India," Mr Kasenally said.
The government of Mauritius is wooing US companies with the carrot of preferential access to the Indian market through the recent Comprehensive Economic Cooperation and Partnership Agreement (CEPA) signed between Mauritius and India.
The Integrated Resorts Scheme (IRS), which is meant to attract high net worth non-citizens who want to acquire an immoveable property of not less than $500,000 in Mauritius (within a resort approved by the board of investment) for personal residence, is also proving to be very popular.
"The investor and his/her spouse and dependents are granted resident permits to live in Mauritius and can later acquire citizenship. Under this scheme, we are attracting people from India as well as people of Indian origin from east Africa and the Gulf region. "In many cases, overseas Indians find Mauritius a better place to set up businesses or move their operations than many other countries," Mr Kasenally said.
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