By now individuals tracking business may know that a lot of Foreign Direct Investment (FDI), foreign portfolio investments and money through private equity flows through Mauritius.
India has signed Double Taxation Avoidance Agreement (DTAA) with as many as 88 countries, which means if you are taxed in one of the countries with which India has signed a DTAA, you do not have to pay tax in India.
If India has signed DTAA with 88 countries why does money flow only through Mauritius?
The answer is simple. The capital gains tax in Mauritius is just 3 per cent, which makes it very attractive to pay tax there and avoid paying elsewhere. In fact, In India it could be several times higher, depending on the industry and various other factors. If it is 3-4 times higher in India. Why would you want to pay that?
That is not the only reason though. Investors for sure know that the country also has a solid regulatory framework that is approved by a host of internationally acclaimed authorities. It also complies with ruled laid down by the Financial Action Task Force on Money Laundering and the Basel Committee.
The good thing for India is that culturally and historically too Mauritius has had good ties with India and the Geographical proximity only made things better. An educated and skilled workforce make it an ideal place from which you can route money.
Taking advantage through the Mauritius route
Of course, of late there have been various reports that companies are escaping paying tax in India by coming through the Mauritius route. But, there is a treaty in place and one cannot argue against such a treaty.
Recently, there were news that Mauritius would offer India two islands in order to preserve the treaty. This was later rubbished by the Authorities in Mauritius.