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Panel to vet tax treaty with Mauritius

New Delhi, July 5: An India-Mauritius joint panel will meet next month to review the double taxation avoidance treaty between the two countries. The move comes at a time Assocham wants General Anti-Avoidance Rules (GAAR) to be shelved.

GAAR is aimed at netting those who structure companies and deals with an intention to avoid taxes. Once implemented, the proposals will give Indian authorities the power to scrutinise any deal that they feel has been structured to evade taxes.

“We will constantly make room for improvements in line with best international practices,” Mauritius foreign minister Arvin Boolell today said at a joint press conference with Indian external affairs minister S.M. Krishna.

GAAR has faced severe criticism from investors, who feel it will give unbridled powers to the tax department, which are likely to view all deals with suspicion.

Some feared it would be used to target deals routed through countries such as Mauritius, with which India has a double-tax avoidance treaty.

According to the treaty, capital gains arising in India on investments from Mauritius can only be taxed in the island nation.

Since Mauritius does not tax capital gains, investments routed through that country will not be taxable. New Delhi’s key concerns have been the abuse of the treaty by investors of a third country or Indian firms re-routing their investment through Mauritius, popularly called round-tripping.

A total of 38 per cent of FDI inflows from 2000 to April 2012 were channelled through Mauritius.

India has been pressing for a revision of the treaty as the country feels it is losing out on revenues.

Mauritius has so far resisted any attempts to rework the pact. “India has assured us that it will do nothing to harm the economic interest of Mauritius,” Boolell said.

Sharp criticism by industry and investors has forced the government to defer GAAR’s implementation by a year to April 1, 2013.

Meanwhile, Assocham president Rajkumar Dhoot today met Planning Commission deputy chairman Montek Singh Ahluwalia and demanded that GAAR be postponed till 2015. He has cited GAAR as one of the most contagious tax proposals, which has hit investor sentiment.

“To boost the economy, GAAR, which has been doing the rounds for the last few months and has investors worried, should be immediately put in cold storage,” Dhoot said after the meeting.

“Secondly pending projects such as Mumbai-Delhi industrial corridor should be immediately given green signal so that investments start flowing in and boosts the economy,” he added.

 
 
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