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December 07, 2006

Tax holidaying in Mauritius

With the little island nation of Mauritius repeatedly being reported in the pink papers as "the largest investor in India" and so many PE and other investors "headquartered" in that country pouring billions into Indian companies, it was bound to attract attention. Especially since some folks in the India government have started to fret about the revenue losses and making noises about reviewing the 'double taxation avoidance treaty' with that country.

Now, in a cover story, Businessworld describes the how and why of operating several shell companies out of "India's favorite tax haven".

Over the past few years, more money has come through the Mauritius route to India than through direct investments from almost any other country. In April-June this year, a total of Rs 4,165 crore came in through Mauritius to India — as against Rs 1,105 crore from the US. By the end of the year, the money flowing in from Mauritius to India could be as high as Rs 15,000 crore. In 2005-06, a total of Rs 11,441 crore came in through this route, more than double the Rs 5,141 crore in 2004-05, which in turn was almost double the Rs 2,609 crore that had come in in 2003-04. Compare that with the relatively piddly Rs 2,210 crore that came in through the US in 2005-06. Investment through Mauritius is over half the total FDI coming into India. Says a senior official: “It is evident more and more routing is taking place through Mauritius.”

Despite noises from some sections of the Indian government, BW does not expect too many changes to the DTAT with Maurutius thanks to powerful vested interests that are have too much invested in/via this route.

Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.