Mollycoddling Indian crooks? Sushma Swaraj allays Mauritius fears on DTAA

It is customary for dignitaries to say nice things, in fact gush over or wax eloquence, about a country they are visiting. But what the External Affairs Minister of India Sushma Swaraj said in Port Louis, the capital of Mauritius, is bound to raise eyebrows of the dyed in the wool tax accountants. She said when the Double Taxation Agreement between India and Mauritius is reviewed, it would be ensured that Mauritius is not adversely affected. Was it a faux pas?

It definitely seems it was a faux pas if not a rash defence of the invidious treaty that barters away Indian revenue’s interest coming as it did when India was agog with the black money issue. It was common knowledge in tax circles that foreign investments of both the varieties, FDI and FII, came into India via Mauritius thanks to the DTAA it has with India that confers complete immunity on capital gains earned in India by a resident of Mauritius with there being no capital gains tax in Mauritius. That trend might have markedly abated in recent times but enough damage has already been done to India’s interest by this single most obnoxious feature of the agreement.

Small wonder, GE Capital, a US company, for example, chose to set up a shell company in Mauritius for its operations in India. Many Indian industrialists have chosen to follow suit with Mauritius offering itself as an excellent money laundering center for illicit money stashed away in Switzerland and other salubrious tax and banking secrecy climes. That is why many in the know aver that the huge amount of black money stashed away in Swiss banks by Indians might already have found its way into India through the process of round-tripping through Mauritius.

Was the seemingly innocuous clause in the DTAA with Mauritius written with a view to benefit Indian crooks given that Mauritius post-haste abolished capital gains tax in its own country the very next day?

In other words, even while being a conduit to investments into India from abroad, Mauritius has been beckoning Indian crooks as well. Some economists rationalize the act of round-tripping through Mauritius on the ground that the country could at least benefit from the black money stashed away abroad. In a way what they are saying is Indo-Mauritius DTAA is a sort of permanent amnesty scheme for Indian crooks.

Given the high passions aroused amongst the Indian public by the black money issue, it was simply not proper for Sushma Swaraj to talk about not hurting Mauritian interest. First she is not the Finance Minister of the nation; she is the foreign minister of India. Second, there is a huge clamor for reviewing the DTAA with Mauritius. In such a milieu, her statement can be construed as mollycoddling the crooks because status quo with regard to exemption from capital gains tax benefits the investors both Indian crooks and genuine foreign investors more than Mauritius itself.

India’s links with Mauritius is ethnic. As much as 68% of its population is of Indian ethnicity with Indians migrating long ago to that country in droves as indentured laborers for sugar plantations owned by the British. The other affinity with that country is strategic with India protecting it from possible aggression and that nation in turn protecting Indian ships passing through its territorial waters from attacks by pirates. But all these do not warrant an invidious tax treaty with that country much less continuance of it as hinted by Swaraj.