Mauritius fund flow worries Chidambaram

Khushiram said, “At the end of our discussion, PC’s question to me was: are investments going to keep coming?”

He was unapologetic over investments here from foreign sources based in his country. “If you limit the advantage to local residents then Mauritius would have neither the need nor the local population resources to enjoy the benefits of tax treaties.”

Khushiram argued that the challenge is to stop the abuse the treaty “by Indians trying to masquerade as NRIs.” On this, he flagged enhanced verification measures in Mauritius over ultimate beneficiaries alongside a possible separate track for NRIs so that they needn’t undergo detailed probes before being allowed to invest.

Taking forward Jaswant Singh’s move in 2003-04, Chidambaram proposes to end the tax on long-term capital gains and slash short-term capital gains to 10 per cent. This would blunt the tax attractiveness of the Mauritius route.

A joint IMF-World Bank financial sector assessment in August 2003 pegged Mauritius as “consistently the greatest source of FDI into India with some $7.5 bn in investment flowing between 1991 and 2003.”