Mauritius Unperturbed By Indian Reduction Of Tax Advantages For FIIs

by Lorys Charalambous, for LawAndTax-News.com, Cyprus

26 July 2004

In his first visit to India since the recent elections there, Mauritian Industry, Financial Services and Corporate Affairs Minister, Sushil Khushiram revealed that the jurisdiction is not concerned by the announcement of capital gains tax changes in India's 2004/05 Budget, despite the fact that the moves are likely to reduce the benefits for foreign institutional investors (FIIs) of routing their investments through Mauritius.

Delivering the Budget earlier this month, Indian Finance Minister Palaniappan Chidambaram revealed that the government intends to eliminate long term capital gains tax on securities transactions, and reduce the rate of short term capital gains tax on securities to a flat rate of 10%.

Although this will reduce the advantages afforded to investors by the India-Mauritius double taxation avoidance agreement (DTA), Mr Khushiram suggested that Mauritius' efforts to build a reputation based on strong regulation, a skilled workforce, and a business-friendly administration are all likely to stand the jurisdiction in good stead, helping it to absorb any losses.

"All the countries of the world are not going to adopt a harmonised, uniform tax policy in a hurry, so there will always be a role for tax planning," he was quoted by the regional media as observing. However, he went on to add that:

"We can take advantage of that but we do not want to be overdependent on DTAs for attracting financial activity."

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