FDI From Mauritius To India Records Sharp Fall In 2003

by Lorys Charalambous, Tax-News.com, Cyprus

29 July 2003

A sharp fall has been reported in the amount of foreign direct investment flowing into India via Mauritius possibly as a result of fears that tax benefits under the Indian/Mauritius tax treaty may about to be withdrawn.

According to Indian daily the Economic Times, the level of foreign direct investment arriving in India via the Mauritius route in the first four months of this year is sharply down on the same period last year, at only 6% of the 2002 total between January and April.

By the end of 2002, the total amount of FDI received in India via the Mauritius route stood at over $1.5 billion. In the first four months of 2003, a relatively small $89.7 million in FDI has entered India via this route. Whilst the level of FDI flowing directly into India from the United States seems to have risen somewhat so far this year, it hasn't increased enough to explain the drastic fall in investment from Mauritius.

The future of the tax-breaks available to Mauritius-based investors in India has been thrown into doubt by a long-running spat between different branches of the Indian Finance Ministry, which is currently before the Supreme Court, and may result in much tougher rules being applied to the Mauritian residence qualification required before low rates of income and capital gains tax can be secured.

Mauritius has consistently been the greatest source of FDI into India, with some $7.5 billion of investment flowing into India from the island between 1991 and 2003. The United States has been the next largest investor, accounting for over $3.5 billion of FDI in the same period.

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