India-Mauritius DTAA review not to impact FDI in long run

Experts opine that re-negotiation of the DTAA would not be of much help. Instead, the FII investments into the country would be impacted if capital gains tax is imposed

New Delhi: Review of India’s three-decade old double tax avoidance agreement (DTAA) with Mauritius will not impact foreign direct investment (FDI) inflows to the country in the long run, reports PTI quoting a senior government official.

“The DTAA review will not have any impact (on the FDI inflows into the country) in the long run,” an official in the Department of Industrial Policy and Promotion (DIPP) said, adding “genuine investors will continue investing in India,”

Talks for reviewing the DTAA are likely to begin in July or August.

While the government has been pressing for re-negotiating DTAA with Mauritius seeking to plug the loopholes and revenue leakages, some experts have raised concerns that the move may impact foreign direct investment (FDI) into the country.

Nearly 42% of FDI into India is routed through Mauritius. Likewise about 40% of the FII fund flow into the country is believed to be routed through the island nation. A large majority of them are third country investors, who use the DTAA for saving capital gains tax.

According the DTAA, capital gains from sale of shares by residents of Mauritius in India would be liable to tax only in that country. As Mauritius does not have capital gain tax, there is no burden on investors routing money to India through circuitous route.

In the wake of pressure on the government to go after black money, it is in the process of renegotiating the DTAA with several countries mainly tax havens like Mauritius.

Experts, however, said that re-negotiation of the DTAA would not be of much help. Instead, the FII investments into the country would be impacted if capital gains tax is imposed.

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BIS: Banks should hike rates

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Govt looking at EPFO-like body for SME sector

The organisation would collect the money or subscription and will assume all the legal responsibilities of the SMEs

The industry ministry is planning to evolve a framework for a privately-run body on the lines of the Employees' Provident Fund Organisation (EPFO) for managing retirement funds and insurance in the small scale sector.

"We are coming out with a concept paper. We are giving a framework of that organisation, which can come up as a commercially viable entity in the private sector and which will takeover the obligations of SMEs," DIPP Secretary RP Singh said, adding that the paper will be out in a day or two.

The new entity, he said, would be an alternative mechanism to EPFO and the Employee's State Insurance Corporation (ESIC).

To be set up as a private sector company or trust, Singh said, the new entity could levy charges for providing various services for the small scale sector.
The move would reduce compliance burden on the small and medium enterprises (SME), which contribute about 45% to the country's manufacturing segment.

Singh said the organisation would collect the money or subscription and will assume all the legal responsibilities of the SMEs.

Under the current rules, a company has to follow several laws including EPF Act, ESI Act, Payment of Gratuity Act, Personal Injuries Act and Workman's Compensation Act. It becomes difficult for small units to comply with all the statutory obligations.

"We are saying that this commercial entity will collect subscription from small scale companies to provide the same facilities at the same level like the ESIC. They will take care of the pensions funds through a trust mechanism," Singh said.

SMEs could be given the choice to avail the services of the new entity, he said, adding that this concept is a part of the proposed national manufacturing policy.

The policy draft of the department said: "It is proposed that the setting up of one or more service organisations will be considered and making the necessary payouts in return for a charge linked to the wage bill of the company."

It added, "Such an organisation can be licensed by the Labour Department and the industry will have the option to resort to this mechanism or comply with the extant regulations for payment of labour dues."

On amendments required for the organisation, Singh said: "Legally the amendments required will be very minimal."

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