June 09, 2016

Holiday Ends for Mauritius

By Praveen Chakravarty, Ajit Ranade

In this The Indian Express article, Praveen Chakravarty, Visiting Senior Fellow at IDFC Institute, with Ajit Ranade explain how scrapping of tax treaty with Mauritius will boost India's tax reform agenda. 


The authors argue "that the end of the tax treaty with Mauritius will perhaps have the most far-reaching impact on India’s economy as well as society. 

India signed a tax treaty with Mauritius in 1983 that gave Mauritius the sole right to tax investment gains made by investing in India. Mauritius’ tax rate on such gains was zero....the biggest distortion of this treaty was the long shadow cast on India’s domestic tax reform agenda...

This treaty has led to a long tail of arbitrages across various asset classes (private vs public shares), types of investors (Mauritius vs non-Mauritius), types of income (capital gains vs dividends) etc. This treaty has hampered India’s ability to garner enough tax resources through progressive direct taxes. While it is true that this treaty provided an opportunity for illegal round tripping of domestic money, the most damaging impact has been the cascading effect on India’s tax structure...

all governments in the past have resorted to increasing indirect taxes, which are more insidious, economically inefficient and ultimately unfair. Indirect taxation makes India’s tax system among the most regressive in the world."


Read the full article here.

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