Uncertainty over India tax treaty affects Mauritius financial services sector
Global investors are adopting a wait-and-watch approach for routing their money through the island economy into India, adversely impacting job creation in the Mauritian financial service space. (Image: business.mega.mu)
As India and Mauritius fail to see eye-to-eye over their tax treaty, global investors are stalling their bets over routing money through the island economy into India.
This slowdown in investments is adversely impacting the island nation’s financial services sector, in terms of both potential employment opportunities as well as job security in existing roles.
According to leading industry body Global Finance Mauritius (GFM), the uncertainty over the tax treaty is also coming at a time when there is a financial crisis.
Accordingly, it has come to a stage of ‘wait and see’ for investors, noted GFM Chief Executive Officer Nikhil Treebhoohun.
GFM represents major banks, institutional investors, law and accounting firms as well as management companies in Mauritius.
When asked if tax treaty uncertainties are impacting the financial services industry, the GFM CEO agreed and added that it is also having a ‘multiplier effect’.
Treebhoohun noted that new investments are shifting towards Africa, but India remains the single most important destination for investments through Mauritius.
Going by the latest estimates, only about 24 per cent of new investments are going to India, while 33 per cent is flowing into Africa.
Treebhoohun added that his country’s financial services industry is also diversifying, both in terms of products and geographies, to seize opportunities in many African nations including Mozambique, Kenya, Tanzania and Ghana.
Both India and Mauritius have been wrangling over the Double Taxation Avoidance Agreement (DTAA) for some time now, which is being revised amid concerns that Mauritius is being used for round-tripping of funds into India.
However, the island nation has always maintained that there have been no concrete evidence of any such misuse and has reiterated on many occasions that it has strict checks and balances in place.
As the tax treaty continues to hang in the balance, the share in the number of investments made by global businesses companies into India through Mauritius declined to 15.87% in 2012. It stood at 23.25% in 2011, as per data compiled by the Financial Services Commission (FSC), Mauritius’ regulatory authority for non-banking financial services.
Meanwhile, the progress on the tax treaty negotiations has been slow but steady. Among others, Mauritius has agreed to Limitation of Benefits (LOB) clause in the revised pact with India to prevent inappropriate use of the tax treaty by third-country investors.
Source: Press Trust of India