India negotiating changes in Mauritius treaty: FM

Finance Minister Pranab Mukherjee said on Wednesday the government is negotiating changes in a tax treaty with Mauritius, the country which accounts for the maximum foreign investment in India.

"So far as Mauritius is concerned, we are having discussions with them for amendment of the avoidance of double taxation agreement. Talks are going on," Mukherjee told PTI when asked whether the government is looking at the possibility of imposing levies on inflows from tax havens.

About 42 per cent of foreign direct investment and about 40 per cent of foreign institutional investors' fund flows into India are routed through the island nation.

It is believed that a large majority of them are third country investors which use the Double Taxation Avoidance Convention with Mauritius for saving capital gains tax.

Mukherjee said the group of 20 developing and developed countries across the world are holding discussions on cooperating to share banking information.

". . .These can be achieved through a legal framework and that legal framework is provided by two sorts of agreements --

one is avoidance of the double taxation agreement and another is the tax information exchange agreement," he said.

So far India has negotiated/renegotiated DTAAs with 33 countries and also entered into Tax Information Exchange Agreements with 13.

Mukherjee said the legal framework required to trace black money 'alleged' to have been stashed in overseas accounts was being worked out.

"This legal framework is being framed and we are working on it," he added.

Finance Secretary Sunil Mitra recently said that discussions to resume the re-negotiation of the three-decade old treaty, stalled since 2008, are likely to resume in July or August.

While the government has been pressing for re-negotiating the Mauritius treaty, seeking to plug the loopholes and revenue leakages, some experts have raised concerns that the move may impact foreign direct investment into the country.

According to the pact, capital gains from the sale of shares by residents of Mauritius in India would be liable to tax only in that country.

As Mauritius does not have capital gain tax, there is no burden on investors routing money in India through a circuitous route.

Image: Pranab Mukherjee