Topic - Closing the tax bolthole
More than three decades and several billions of dollars of lost revenue after India entered into a bilateral Double Taxation Avoidance Agreement with Mauritius, the two countries have finally renegotiated the terms of their agreement. The signing, this week, of the protocol for amending the treaty means that with effect from April 1, 2017, companies and investors resident in Mauritius will have to pay capital gains tax on the sale of shares purchased, on or after that date, in a company based in India. The amendment to the convention has been some time coming.
In 2011, the UPA government had informed Parliament that a joint working group was in place since 2006 to ensure adequate[पर्याप्त] safeguards to prevent misuse of the DTAA — and that work was in progress to strengthen the agreement and improve the exchange of information on tax matters. However, nothing concrete emerged. The present NDA government too, in its first full Budget, presented in 2015, acceded[मान लेना] to opposition from overseas investors and postponed the implementation of the General Anti-Avoidance Rules (GAAR) to 2017. It is against this backdrop[पृष्ठभूमि] that the amendment to the DTAA with Mauritius comes as a very welcome development that could help plug a significant loophole for tax avoidance. The practice of setting up companies in Mauritius merely[केवल] to take advantage of the DTAA and the prevailing low tax rates there will now be rendered pointless. There is to be a mandatory check of the main purpose and bona fides of a business — a firm based in Mauritius will be deemed to be a shell or conduit company if its total operational expenses in that country are less than Rs.27 lakh. It will not be eligible for the 50 per cent reduction in tax rate on capital gains to be applicable to investments made under the amended DTAA during a transitional two-year period between April 1, 2017 and March 31, 2019. From April 1, 2019, all transactions attracting capital gains tax for investments made out of Mauritius will be taxed at the full applicable rate prevailing at the time in India.
The DTAA amendment will also ensure India’s conformity to the Organisation for Economic Cooperation and Development and G20-led guidelines on combating[मुकाबला] base erosion and profit shifting. In 2015, the OECD had spelt out a series of measures countries needed to take to curb abusive tax avoidance by multinational enterprises — including steps to tighten double taxation avoidance treaties. For a country keen to play a greater role in global decision-making, the move to seal a key route for the round-tripping of capital generated out of tax-dodging enterprises will help boost both revenue and confidence in the rule of law in India. It is beyond doubt that ensuring a level playing field for all international investors, irrespective of domicile, can only serve to enhance India’s attractiveness as an investment destination in the long run.
Vocabulary :
adequate[पर्याप्त]-enough for some need or requirement
- Be sure to allow adequate [=sufficient, enough] time for the paint to dry.
- The garden hasn't been getting adequate water.
accede[मान लेना]-to agree to a request or a demand — usually + to
- The government was forced to accede to their demands.
backdrop[पृष्ठभूमि]-the scene or scenery that is in the background
- The mountains provided a perfect backdrop for the wedding photos.
merely[केवल]-used to describe the only reason for something or the only effect of something
- She got the job merely because her father owns the company. [=the only reason she got the job was because her father owns the company]
- Your essay merely hints at the real problem.