Tax treaty uncertainty with India impacts Mauritius fin firms

Investors are adopting a "wait and watch approach" in routing their money through Mauritius into India amid bilateral tax treaty uncertainties, which is also impacting the island nation's financial services sector.

According to a leading industry body - Global Finance Mauritius - continuing uncertainties over the tax treaty with India are having a negative impact on employment opportunities as well as existing jobs in the island nation's financial services industry.

"The uncertainty (over tax treaty) is also coming at a time when there is a financial crisis. So it has come to a stage of 'wait and see' (for investors)," GFM Chief Executive Officer Nikhil Treebhoohun told PTI in an interview here.

GFM represents major banks, institutional investors, law and accounting firms as well as management companies in Mauritius.

When asked whether the tax treaty uncertainties are impacting the financial services industry, he replied in the affirmative, adding that it is also having a "multiplier effect".

"New investments are shifting towards Africa... But India remains the single most important destination (for investments through Mauritius)," Treebhoohun noted.

Going by the estimates, only about 24% of the new investments are going to India, while 33%  is flowing into Africa.

The India-Mauritius Double Taxation Avoidance Agreement (DTAA) is being revised amid concerns that Mauritius is being used for round-tripping of funds into India even though that country has always maintained that there have been no concrete evidence of any such misuse.

Both sides have been discussing the treaty revision for quite sometime now.

Traditionally, Mauritius has been one of the biggest sources of Foreign Direct Investment (FDI) into India.

Treebhoohun said that his country's financial services industry is also diversifying, both in terms of products and geographies. Opportunities in many African nations including Mozambique, Kenya, Tanzania and Ghana, are being looked into.

While Mauritius says that it has strict checks and balances in place, uncertainties over the tax pact have adversely affected investment flows between the two nations.

Share in the number of investments made by global businesses companies into India through Mauritius declined to 15.87 per cent in 2012. The same stood at 23.25 per cent in 2011, as per data compiled by the island nation's Financial Services Commission (FSC).

Among others, Mauritius has agreed to Limitation of Benefits (LOB) clause in the revised pact with India. LOB would help in preventing inappropriate use of tax pacts by third-country investors.