Mauritius hopes to remain top FDI source despite new tax treaty

In May, India and Mauritius signed a protocol to introduce in-principle taxation of capital gains in India in a phased manner

Even as negotiations are underway, Mauritius is hopeful of remaining the largest source of foreign investments into India even under the new treaty.

In May, India and Mauritius signed a protocol amending the India-Mauritius Tax Treaty to introduce in-principle taxation of capital gains in India in a phased manner.

"The initial treaty was the double taxation avoidance, it was helpful to both Mauritius as well as India because many investments were coming here through Mauritius.

"The relations between the two countries have always been very strong and I see no reason that it will be otherwise. It will be very strong we are doing everything to make it stronger," Mauritius Prime Minister Sir Anerood Jugnauth told PTI on the sidelines of a luncheon meet with business leaders organised by All India Association of Industries (AIAI).

The Prime Minister of the island nation said economic and diplomatic ties between the two nations have been on an upswing and pointed out that there are already lots of investments by Indian people so he does not see any reason why it should not continue.

Jugnauth said they had no other option but to negotiate with India after the Indian government decided to put an end to the decades old treaty.

"Now we are still negotiating to have something new to replace it. The old treaty was obviously beneficial but to us and since it is not there we are losing the benefit that we were making as I said we had no other option," he said.

When asked about the impact of the abolition of the old treaty would have on the country's economy, the Prime Minister said, "Mauritius is still having its financial centre which has not been affected to much extent and we are trying to diversify. We are also trying to make up for whatever loss the centre is facing. We have to live up to reality (abolition of the treaty), we can't do otherwise."

He said the country is trying to diversify and at the same time negotiating for new treaty.

"We have already said it to Prime Minister Narendra Modi that it (the new treaty) should not be less favourable than the treaty that India would be making with other countries which they used to have the treaty before," Jugnauth said, adding, "India would do everything not to make us lose therefore we are still negotiating. I can't say what will be the final result."

As per the protocol, India would be taxing on capital gains arising from sale/transfer of shares acquired on or after April 1, 2017.

The protocol protects investments in shares acquired before 1 April 2017, that is existing investments made before 1 April 2017 have been grandfathered and will not be subject to capital gains taxation in April next.

According to statistics, foreign investments in India from Mauritius has been around 33 per cent since 2000 and in FY 2016, it was 21 per cent.

The foreign funds owned over 28 per cent in the Sensex and Nifty stocks.