Regulations
How the Mauritius Tax Treaty will affect FII inflows into the Indian market
India has amended its 33-year old tax treaty with Mauritius that may hit investment inflows, especially considering over the past 10 years, it was nearly $81.8 billion or 34% of the total inflows routed through that country. India has signed a protocol agreement with Mauritius to prevent evasion of taxes on income and capital gains by entities of either side. Among other measures in the protocol pact with Mauritius is to have a source-based taxation of capital gains on shares. 
 
According to Edelweiss Broking Ltd, nearly 60% of investments coming into India through participatory notes (P-notes) or overseas direct investments (ODIs) come through Singapore and Mauritius. The changes in tax laws would mean that short-term capital gains would now are taxed for but starting 1 April 2017. This means the government has given ample room for changes to take effect and even out the transition, it added. 
 
Edelweiss said, "Private and venture capital investments may also see an impact. As most of these investors prefer to invest through alternate routes like preferential shares, the changes in tax law would entail applicable taxes on conversion. Therefore, some of these investors may accelerate investments till the window of 1 April 2017 kicks in."
 
"Indian markets have seen a number of factors turn in favour over the recent months. Reversal in commodities has removed the threat of systemic risk in commodity producing emerging markets, monetary policy in US and elsewhere remain accommodative, monsoon rainfall is expected to be above normal, government investment in infrastructure remains supportive and banking stress seems to be priced in. There we believe that the current reaction to the changes in tax laws is an opportunity to benefit from the upcoming bull trend. We continue to remain bullish on markets," the report added.
 
Here are the important changes and its effects...
 

The Treaty Change

  • If as a foreign investor you invest in Indian companies by buying shares, at the time of selling these investments you pay capital gains tax. Now there are certain countries with which India had a long standing double taxation avoidance agreement (DTAA).
  • This agreement allowed capital gain on the sale of shares to be untaxed in India. Countries like Mauritius, Cyprus and Singapore had a these DTAA which allowed investors to set up shell companies in these countries to enjoy no taxation.
  • There are around 88 countries with which India has DTAA agreement but in few countries (Mauritius, Singapore and Cyprus) DTAA agreement clause give exception from capital gain, interest received, dividend tax. After the change in treaty with Mauritius this tax haven status will go away.

The Tax Change

The “worry” part
a. From 1 April 2017, any shares that are purchased, by Mauritius entities, will see capital gains taxes in India.
b. 7.5% withholding tax on Interest income arising in India to Mauritian resident banks in respect of debt claims or loans made after 31 March 2017.
c. Shares bought and then sold after 31st March 2019 will attractive full domestic tax rates
 

The positive, Grandfathering

a. Shares bought before 1 April 2017 will exempt from tax, as per amended DTAA
b. Shares bought after 1 April 2017 and sold before 1 April 2019 will attract half the domestic tax rate (7.5%, which is half of 15%). For this to be applicable the investor needs to qualify under the limitation of business (LOB) principle Long term capital gain on sale of shares is currently zero in India; therefore the impact would be on futures and options (F&O) activity, P-Notes (intensity of impact would be clear after releasing of protocol text.) 
 

The Foreign Flows

  • In the past 10 years India has received $239 billion of foreign direct investment (FDI) inflows. Out of this, nearly $81.8 billion or 34% has come through Mauritius. So, Mauritius is very important for FDI flows into India.
  • In the same period Singapore has accounted for $42 billion or 22% of FDI flows into India. So put together Singapore, Mauritius account for more than half of the FDI into India.
  • Since both these countries had DTAA, amendment to the tax laws can cause changes in flow of FDI.
 

User

Transforming governance with app-based platforms
Technology solutions and apps can transform citizens' access to civic services and governance as shown by Nashik Municipal Corp. Mumbai and other cities too can use similar app-based platforms to transform governance and ease lives of citizens, say experts at a panel discussion organised by Moneylife Foundation. These experts have developed private apps to offer solutions to everyday issues and to help build communities.
 
The experts include Umesh Jain, Founder of AasPaas, Chetam Temkar, Founder of SmartShehar and Prof Avkash Jadhav, nominated municipal councillor at the BrihanMumbai Municipal Corp (BMC). Prof Jadhav also explained initiatives of the municipal corporation and provided some perspectives on why citizens need to participate more actively in civic governance in order to make it effective.
 
Mr Jain, a technology expert, said AasPaas is an app-based neighbourhood engagement platform that connects all stakeholders such as citizens, administration officials, civic bodies, elected representatives and non-governmental organisation (NGOs). "Our objective is to help build stronger communities and enable quicker resolution of civic issues, better governance and effective delivery by NGOs too. It is like a Mohalla on Social Media," he added.
 

While the app is ready, AasPaas plans to start a pilot project for community engagement at Bandra, very shortly. His idea is that the app would not only allow citizens to engage with municipal authorities, but will also be the go-to destination to discover entertainment, sports events, social gatherings and fun community events in the neighbourhood.  
 
Mr Temkar, who, after working with several Fortune 500 companies has returned to India from the US, provided his broader views on concept of SmartShehar. He says, "We can re-imagine 'Smart Cities' through a series of mobile phone apps that will allow you to ease commuting, crowd source information, report complaints, connect with other like-minded citizens, log events and so on. This has transformational implications across urban planning, agriculture, education and transport planning."
 
For example, Mr Temkar says when someone opens the SmartShehar mobile app in Mumbai, he will get basic information like location, nearest railway station, city bus stops as well as fares to reach the station. In addition, he said, on the app, one can raise specific issues that are then forwarded to the authorities for redressal. "We would really love to have the authorities responding to such queries, grievances online. But as we know, most government offices still prefer the document submission, we have given this option as well for the users. User can take a print out and submit it to the authorities. If the issues are resolved, then the user can close it. There are several NGOs that are willing to take issues that remain unresolved after certain time," he added.
 
SmartShehar already has successful apps to know about BEST and railway routes, which have received wide coverage.
 
Mr Jain also highlighted the role played by NGOs in such app based platforms to improve governance. Replying to a question asked by Prakash Joshi, one of the attendees, Mr Jain said AasPaas apps helps connect citizens who wants to volunteer and the NGOs who are looking out for such help locally. 
 
The session was attended by several activists and concerned citizens leading to an interesting discussion. A key question was how to get people more engaged. Prof Jadhav correctly pointed out that apps should not give citizens the impression that they can merely complain at the press of a button on their smart phones, there is a crying need for people to participate in the democratic process.  Echoing this view, Mr Temkar said, while there were endless complaints about lack of amenities or proper services, most citizens have not made the effort to file a single complaint. 
 
Another activist asked whether smart corporators and aspiring corporators could use the apps effectively to engage with their wards and constituencies. Replying to this, Prof Jadhav said, he had shared the app-based platform initiatives with some of the corporators from across the party line, and received good response. "They (the corporators) are very much interested in such developments, but due to time constraints and pre-engagements, may not be present for today's session," he asserted.
 
According to Mr Temkar, even a local member of Legislative Assembly (MLA) has shown keen interest in SmartSheher and they are taking it forward. 
 
When asked for funding module used by app-based platforms, as most government bodies shy away from supporting such initiatives, both the experts and developers feel that the government should support them. Especially, Mr Temkar explained how similar app-based platform is funded by the US government. However, in India, since there is lack is similar support, we need to raise the funds by local advertising and may be by sharing the data, he said.
 
Mr Jain says AasPass will do the local advertising as well as may take some part money or fees from NGOs seeking volunteer or may be from the reward received by people for raising queries on the platform. But it will take some time, he added.    

 

 

User

Study Calls On Obama to Withdraw Legal Memo That Allows Faith-based Charities to Discriminate

The Obama administration has roundly criticized states such as North Carolina and Mississippi for passing laws that allow discrimination in the name of religious freedom. But at the same time, the administration has left in place a 2007 memo from the Bush White House that allows religious charities with federal contracts to discriminate in hiring for federally funded programs.

Now, as Obama prepares to leave office, a group of prominent constitutional lawyers is calling on the Obama White House to revoke the legal memo, which they argue has been used by religious groups to refuse to provide services, including emergency contraception for human trafficking victims, that conflict with their beliefs. Their arguments are detailed in a legal analysis published this morning by Columbia Law School's Public Rights/Private Conscience Project, which includes contributions of scholars from George Washington, Emory and Brigham Young universities, among others.

The 16-page paper is, in part, an effort to put pressure on Obama to rescind the memo, an action that does not require Congress to act. As a presidential candidate in 2008, Obama criticized the Bush Justice Department for drafting it, but as president failed to follow through.

"For this administration that has been so strong in so many ways on important civil rights questions and in opposition to similar efforts at the state level to sanction discrimination 2014 to allow this memo to remain in place 2014 is really very unfortunate," said Ian Thompson, a legislative representative in the American Civil Liberties Union's Washington, D.C. office. The Columbia paper, he said, is groundbreaking in terms of both its signatories and its scope. "They cover the waterfront in terms of pointing out the dangers and the harms of the memo being in place," he said.

Bush administration lawyers wrote the memo after the Christian charity World Vision, which serves the poor in nearly 100 countries, objected to a nondiscrimination clause in a $1.5 million Department of Justice grant to fund a mentoring program for at-risk children. World Vision argued that it should be allowed to hire only Christian employees for the program and that not allowing the group to do so would put a "substantial burden" on it.

As justification, the nonprofit cited the 2000 Religious Freedom Restoration Act (RFRA), which bars the government from substantially burdening people's ability to practice religion unless it has a compelling interest to do so. The Bush White House's Office of Legal Counsel interpreted the law to mean that World Vision2014and by extension, other faith-based organizations2014could hire on the basis of faith for federally funded positions.

World Vision argues that withdrawing the memo will only hurt the poor recipients of the charity's help. "[It] would call into question federal laws and would divert faith-based grantees' time and funds from serving the needy to litigating to re-clarify the law," World Vision's chief legal officer, Steve McFarland, said in a statement.

The Columbia analysis says that since the government is not forcing faith-based organizations to apply for grants, it invalidates the argument that they are being substantially burdened. Instead, the organizations are freely choosing to bid on government contracts with certain conditions specified in advance.

The analysis also highlights examples in which some religious groups have expanded the scope of the 2007 memo, using it as a legal justification to cherry-pick what provisions of a federal grant to fulfill. For example, when the United States Conference of Catholic Bishops (USCCB) won a 2005 grant from the Department of Health and Human Services (HHS) to provide assistance to human trafficking victims, the bishops did not provide contraception or abortion. The ACLU sued HHS in 2009, and the agency ended its contract with the USCCB in 2011.

"The agency is writing the terms of the grant," said George Washington University Law professor Ira Lupu, who signed the Columbia analysis. Grant applications don't ask faith-based organizations for their potential objections, and government oversight of grant recipients varies from agency to agency.

In 2014, as unaccompanied children fleeing violence in Central America were held at the U.S.-Mexico border, the Office of Refugee Resettlement drafted guidelines for grant-receiving agencies working with the minors. The proposed rules required caregivers to provide emergency contraception or abortion to children who required it. The USCCB, along with four other faith-based organizations, wrote a letter in February 2015 to the Obama administration to ask for a faith-based exemption to the contraceptive/abortion requirement in the grant rules. The USCCB cited the World Vision Memo in the letter. The Office of Refugee Resettlement hasn't yet issued finalized rules.

Some legal scholars argue that by keeping the memo in place, the Obama White House is giving ammunition to groups who sue the government in religious liberty cases. . In March, the federal government argued against expanding RFRA in the Supreme Court case Zubik v. Burwell, which centers on just how far to accommodate religious nonprofits that object to the mandate to provide contraception to employees.

"If the inability to receive a grant constitutes a substantial burden on religion, then certainly the requirement to do something would seem to constitute a substantial burden," said Robert Tuttle, a law professor at George Washington University who signed the Columbia analysis.

The Obama administration has taken steps to address religious discrimination by faith-based organizations. On May 4, new guidelines went into effect that require government agencies to provide a channel for people receiving aid through federal grant programs to report wrongdoing by service providers. The guidelines follow a 2010 executive order2014updating a Bush executive order2014that prohibits discrimination against aid recipients.

"The Administration has not condoned religious discrimination against beneficiaries of federal aid," Melissa Rogers, special assistant to the president and executive director of White House Faith-Based and Neighborhood Partnerships, said in an emailed statement, citing the May 4 guidelines and the 2010 executive order. The White House referred direct questions on the World Vision Memo to the Justice Department. The Justice Department and the authors of the memo did not respond to requests for comment.

But, legal experts say, the Obama administration is not doing all it can to protect beneficiaries until the World Vision Memo is rescinded. Katherine Franke, faculty director of the Public Rights/Private Conscious Program at Columbia, said the guidelines put the onus of spotting and reporting wrongdoing on already vulnerable populations.

"What we're talking about is on one hand general guidance coming from the government and on the other hand a set of legal arguments," Tuttle said. "So these are government-made legal arguments that lawyers for [grant] recipients can use and say, 2018We know those are your general guidelines, but we are different, and you recognized that in the [World Vision] memo.'"

The Columbia analysis follows several recent high-profile attempts to get the administration to reconsider the memo. Members of Congress wrote to Attorney General Loretta Lynch in February asking for a review and reconsideration of the memo. Advocacy groups wrote letters in 2014 and 2015. Maggie Garrett, legislative director for Americans United for Separation of Church and State, said the groups haven't received a response.

Just as many organizations have written to the administration asking that it keep the memo in place. University of Virginia School of Law professor Douglas Laycock, who filed a brief with the Supreme Court in favor of the government's position in Zubik, has assured the administration that the memo is legally sound.

At the very least, the authors of the Columbia analysis hope the administration formally clarifies that the memo only applies to religious hiring 2014 and no more.

"Leaving it in place tarnishes the civil rights record of the Obama administration," Garrett said.

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for their newsletter.

 

 

 

 

 

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