The Finance Minister, Mr Pranab Mukherjee, has sought to downplay the jittery reaction by the stock markets to the developments on the Indo-Mauritius double tax avoidance pact, stating that resumption of talks between the two countries was nothing new.
“It is nothing new. It is an old one. For sometime, the talks were suspended. Now it has resumed,” Mr Mukherjee told reporters on the sidelines of a Comptroller and Auditor General of India (CAG) event here on Tuesday.
The process revising the existing DTAA was initiated in 2006, but got stalled in 2008. Now both sides have agreed to resume the discussions of the Joint Working Group for the revision.
Over the last few days, Indian policymakers had confirmed that the nearly three-decade old DTAA with Mauritius will be revised and that the Mauritius side has expressed its desire to renew discussions for the revision. The Finance Secretary, Mr Sunil Mitra, on Monday said that India has offered blocks of dates in July and August for discussions.
The Economic Affairs Secretary, Mr S. Gopalan, also sought to allay the fears of any revision impacting investment flows into India.
“There is not much discussion. We will have to come to an agreement. I don't know why people are making so much noise about it. One agreement will not affect FDI flows into the country. FDI flows depend on number of factors,” Mr Gopalan told reporters today.
The main anxiety for the markets is the possibility of removal of tax benefits available to investors who route their investments to India through Mauritius. Just as DTAAs are bilateral agreements, any renegotiation has to be accepted by both sides, tax experts pointed out.
As sensitive diplomacy is involved in any talks with Mauritius, the Indian side has left it to the External Affairs Ministry and not the Central Board of Direct Taxes (CBDT) to take the process forward, official sources said. The CBDT has always been at the forefront when it came to renegotiations of DTAAs. But Mauritius has been an exception.
On its part, Mauritius has in the recent years been making qualitative changes to its laws so as provide comfort to countries such as India, whose main concern has been round-tripping. The island-country has also been strengthening its know-your-customer (KYC) norms besides improving regulatory process for setting up of companies.
As for banking information, Mauritius has been providing banking related information with India in recent years, a Revenue Department official said. There are indications that the Indian side may in the coming days negotiate with Mauritius a limitation of benefit clause under the treaty. India already has such an arrangement with Singapore.