Flic-en-Flac (Mauritius): Expressing concerns over delay in revision of Indo-Mauritius tax treaty, the island nation's financial sector regulator says that both countries are losing because of an adverse impact of these uncertainties on the flow of investments.
New investors are not exploring investment opportunities offered by Mauritius as a gateway to India, which has traditionally been a preferred route for such investments, due to tax pact related concerns, Mauritius' Financial Services Commission (FSC) Chief Executive Clairette Ah-Hen said.
A revision of the Double Taxation Avoidance Agreement (DTAA) between India and Mauritius has been delayed due to differences over issues like capital gains.
There are concerns on the Indian side that the treaty is being misused for tax avoidance and alleged round-tripping of funds, but the island nation has been maintaining that strict measures are in place to curb any such abuse of the pact.
"Because of this uncertainty (over tax treaty issues), both India side and Mauritius side are losing, as we could have otherwise got the momentum. The funds would have been flowing.
"But now you have a situation where investors wait and watch. So they (investors) will look for alternatives... That is where time is important (for revising the pact)," Ah-Hen said.
Set up in 2001, FSC is the integrated regulator for all non-banking financial services and global business sectors in Mauritius, which has been a major route for foreign investments coming into India. However, the flow of funds from Mauritius has taken a hit in the recent past.
Emphasising that it is a "question of managing perception", she said that the current scenario is probably not helping new businesses which would have otherwise explored Mauritius for opportunities.
"I think those who have built some sort of long-term relationships, they know that there is no point in going away and looking elsewhere. But, if you look at the sectors and opportunities that come in terms of investments, those who are not long established, it is an issue.
"What we are finding is that probably it is not helping new businesses who would like to have opportunities (in Mauritius)," Ah-Hen said.
Ah-Hen, who is also part of the Joint Working Group (JWG) of the two nations looking to sort out the differences over revision of the tax treaty, said the Indian side's concerns are mainly on capital gains.
"When you are investing, you have to think what are you going to do next... We are all aiming at economic development but we have two different approaches to that...," she said.
"I think the biggest issue is the article about capital gains. You have capital gains in India and we don't have capital gains in Mauritius... Here, we have kept the taxes lower for economic development, but we have also chosen to have more indirect taxes," she noted.
Ah-Hen said for infrastructure development Mauritius has gone for attracting capital flows.
FSC has the mandate to license, monitor and supervise the conduct of business activities in line with the legal framework and international standards.
First Published: Sunday, September 15, 2013, 10:38