Scrap taxation treaty with Mauritius: CPI(M)

By Our Special Correspondent

NEW DELHI, MAY 30. The CPI(M) today demanded that the Double Taxation Avoidance Treaty (DTAT) with Mauritius be scrapped since foreign institutional investors (FIIs) had utilised this to take away their profits from India without having to pay due taxes on them. Such treaties with any other country should be done away with, the party said.

The CPI(M) politburo member, Mr. Sitaram Yechury, told presspersons here today that the country was losing about Rs. 3,000 crores annually on account of the treaty with Mauritius. He felt that after reports of the Finance Minister, Mr. Yashwant Sinha's close relatives being employed in one of the beneficiary FIIs and being rewarded for the gains the fund made in India, ``it was untenable for the Finance Minister to continue in office''.

Mr. Yechury said India had similar treaties with many countries, including the United States. However, all these agreements stipulate that taxes should be paid in that country where the profits were made, that is, if an FII earned profits in Indian stock markets, then they should pay the capital gains tax in India and the dividend tax in the U.S. The only exception was the treaty with Mauritius, as per which any company registered in Mauritius need not pay taxes in India, Mr. Yechury said.

He said Mauritius did not have a capital gains tax (that is, tax on profits earned through sale of shares) and said that if there was no tax in that country, the question of double taxation did not arise.

Backing his claim of a revenue loss of Rs. 3,000 crores annually, Mr. Yechury said the FIIs had cumulative investments of over Rs. 40,000 crores in the Indian stock markets and this investment appreciated by over 80 per cent last year. That would mean profits of about Rs. 32,000 crores and a 10-per cent capital gains tax would have yielded Rs. 3,200 crores to the exchequer.

Making a political point, he said that at a time when there were reports of starvation deaths, largescale suicides and of people ``selling'' vital organs such as kidneys in order to survive, the Vajpayee Government had chosen to hike the prices of all essential commodities citing lack of resources. The food subsidy bill had been slashed to save Rs. 1,100 crores, but the FIIs were being allowed to get away with Rs. 3,000 crores, he added.

About the Finance Minister's daughter-in-law, Ms. Punita Kumar Sinha, Mr. Yechury said the company she worked for, India Fund Inc., was an FII incorporated in Maryland, the U.S. In its annual report for 1999, the company said it had opened a branch office in Mauritius for tax residency and had routed all investments in India through Mauritius to take advantage of the DTAT.

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