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The Government today said that it has resumed talks with Mauritius for re-negotiation of the Double Taxation Avoidance Agreement (DTAA), a 30-year-old treaty which has been used by investors to save taxes.
“As far as DTAA with Mauritius is concerned, it is nothing new. It is an old one. For some time talks were suspended. Now it is resumed,” the Finance Minister, Mr Pranab Mukherjee, told reporters here on the sideline of a CAG seminar today.
The Finance Secretary, Mr Sunil Mitra, had yesterday said: “The discussions are likely to resume on re-negotiation of the three-decade-old DTAA (with Mauritius) in July or August.”
While the Government has been pressing for re-negotiating the Mauritius DTAA seeking to plug the loopholes and revenue leakages, some experts have raised concerns that the move may impact the foreign direct investment (FDI) into the country.
The Economic Affairs Secretary, Mr R. Gopalan, said: “One agreement (renegotiating DTAA with Mauritius) would not make any difference on FDI inflows (in the country).”
India receives 42 per cent of its FDI routed through Mauritius. Likewise about 40 per cent of the FII fund flows in the country are believed to be routed through the island nation. A large majority of them are third country investors which use the DTAA for saving capital gains tax.
According the DTAA, capital gains from sale of shares by the residents of Mauritius in India would be liable to tax only in that country. As Mauritius does not have capital gains tax, there is no burden on investors routing money in India through the circuitous route.
In the wake of pressure on the Government to go after black money, it is in the process of renegotiating the DTAA with several countries mainly tax havens like Mauritius.
Experts, however, said that re-negotiation of the DTAA would not be of much help. Instead, the FII investments into country would be impacted if the capital gains tax is imposed.
“Negotiating the treaty will not give desired results to the Government. Renegotiation of the treaty will undermine India’s confidence in other countries. We have an agreement with Singapore too,” Mr K.R. Sekar, Partner, Deloitte Haskins & Sells, said.
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