Making an expansive, sweeping gesture with both arms, K.C. Li Kwong Wing, MP, takes in the dramatic view from the conference room on the fourth floor of the building dubbed Ebene Skies. Right behind the headquarters of the financial advisory firm Mauritius International Trust Company Ltd (MITCO), of which Li is chairman, is Mauritius’s past—a prominent sugarcane research institute, a cane field, and, along that, low green hills out of a picture book. As Mauritius lost prominence in the world sugar trade to beet sugar from Latin America and cheaper Asian cane sugar, the island moved rapidly toward services. Actually, after a significant foray into textiles soured in Bangladesh’s favour, Mauritius is left dependent on its financial industry.
Post Office Round Trips
As a reforming Mauritius promises to help India hunt black money, other laundering sources open up
And so, from Li’s office one gets a clear view of Mauritius’s much-vaunted future—a glowing new ‘CyberCity’ which invites the world’s software, BPO and education companies, including from India. CyberCity’s glass-and-metal facades, behind which many of Mauritius’s 20,000 service sector employees work, could be anywhere—Dubai, Singapore, Gurgaon. Banks, public sector companies and towers full of firms from around the world have sprouted offices here, against a backdrop of tropical sky and greenery.
In fact, corporate expansion in Ebene or elsewhere is the subject of a heated battle between India and Mauritius. While India suspects Mauritius licenses mere shell companies which route black money and ‘P.O. Box firms’ that solely exist to save tax, Li wants to look ahead, at these gleaming new structures, and he wants India to see the same. “We are opening our economy to India. What we need is real cooperation,” he says, rattling off areas such as medicine and energy, where Indian companies can open an office near his. “But all India talks about is the ‘Mauritius route’ and black money—India is missing from our [diversification] plans,” he complains.
Try as it might, Mauritius is unable to shake off the Indian belief that it is a tax haven, a place to ‘round-trip’ unknown amounts of tax-evaded money belonging to businessmen and politicians. India wants Mauritius to step up inquiries into the firms it licenses, to ascertain the real owner of money finding its way to India. Mauritius assures India it will do all this and more. A month ago, as Mauritius mulled stricter new rules for permanent residency, among other changes at India’s behest, the latter rejected three FDI requests from Mauritius for not declaring a ‘beneficial owner’, an indication perhaps that it will sacrifice investment dollars to unearth black money.
India’s data on incoming foreign investment is, willy-nilly, the mainstay of the widely-held belief that the ‘Mauritius route’ needs plugging to shore up its tax revenues. Between 2000 and 2011, 41.8 per cent of FDI to India came from Mauritius. In December 2012, the asset value of Foreign Institutional Investor inflows—or ‘hot money’ that pump primes Indian stock markets—from Mauritius to India was Rs 3,51,356 crore, making it the top springboard for such funds. By December 2013, this figure dipped to Rs 3,31,309 crore, putting Mauritius behind the US.
But this didn’t change India’s perception of the island nation—and Li blames Indian politicians. “They are hypocrites for not recognising the melting away of the Mauritius route,” he says. The Indian press, he feels, is complicit in ‘scapegoating’ Mauritius, making it lose face globally. “Indian politicians blame us because Mauritius is small—a tiny island in a big ocean. Would they raise a similar cry about funds from Singapore or Channel Islands?” he asks.
It’s a common sentiment in Mauritius, but outside the official chambers, where India and Mauritius freely exchange assurances of ‘sharing’ investor information. Diplomatic sources call it the hunt for a ‘win-win solution’, but neither side commits to exact changes in the Double Taxation Avoidance Agreement (DTAA). Under the treaty, India has waived its rights to tax capital gains for investments already taxed in Mauritius, while Mauritius has set the rate of tax at zero. This has opened the field for money to come to India through Mauritius—from GE to Vodafone. Why, Mauritius-based firms routing investments to India figured in the 2G scam.
“Our government has assured Sushma Swaraj ji that there will be full cooperation on identifying black money coming to India,” says Mookhesswur Choonee, minister of arts and culture, Mauritius, whose ministry hosted Union external affairs minister Sushma Swaraj in Mauritius in November. During talks with Swaraj, Mauritius’s foreign minister Arvin Boollel promised to cooperate over black money—a task set for a Special Investigative Team by India’s Supreme Court. Swaraj reassured Mauritius, however, that it “would not be adversely affected” by the ongoing review of the DTAA. India too has something to offer. For instance, says a diplomatic source, it supports Mauritius’s claims over the Chagos island. India is also investing in Mauritius, like that by Afcons, in an expected $900 million monorail project.
Former PM Paul Berenger, who founded Mauritius’s MMM Party, which may stake a claim in a new government after polls in December, echoes this quest for a compromise. “I’m not sure the DTAA with India helps the people of Mauritius as much as it helps the firms involved—but it is too good not to be enjoyed,” he says. The “huge campaign” in India against the “Mauritius route” is forcing the country to position itself as a hub for investment to Africa, says Berenger.
Yet, Mauritians say that while their country tries to fulfil India’s requirements—on limitation of benefits, for instance, which will put them on par with India’s agreement with Singapore—they don’t believe it will solve India’s black money problem. A former finance minister of Mauritius says, “The relentless focus of Indian politicians on the Mauritius ‘route’ may shut us down here but there are some 80 other countries, such as Cyprus and Malta, with whom India has similar tax treaties. The so-called ‘P.O. Box’ companies will just move there!”
From this point of view, the tussle over black money routed into India via Mauritius is nothing less than a struggle for survival of the island’s way of life. The Financial Services Commission (FSC) of Mauritius has estimated that over 50 per cent of the number of investments by global companies through Mauritius went to Africa, while India’s share fell.
Other than the France- or England-trained bankers, accountants and lawyers who throng business districts of Quattre Borne, Ebene and Port Louis, and tourism and agriculture, there is little other visible economic activity. Since the 1980s, Mauritius’s economy has grown largely by dint of what it calls ‘flexible’ tax laws—an effective tax rate of three or zero per cent on licensed companies, a corporate tax rate of 15 per cent on profits, no capital gains or withholding tax nor exchange controls. The country is facing a large-scale brain drain and high unemployment of 10 per cent. “We have 40-odd tax treaties with Europe, Asia and Africa and these give us the financial stability we need,” says the former finance minister.
Between 1948 and 2008, around $213.2 billion came into India from Mauritius. Around the time when Indians began to rage over overseas black money, former CBI director A.P. Singh said $500 billion-worth of Indian money lay overseas. In 2011, the BJP claimed that up to $1.4 trillion Indian money lay in offshore tax havens. It promised to negotiate with tax havens and impose a 30 per cent tax on all accounts with black money.
However, Mauritius insists on the legitimacy of its financial sector. “All our jobs, our ancillary services, all petrol pumps, cars, mobile phones, everything depends upon a healthy financial sector in Mauritius. One lakh people depend directly on it,” says Li.
But the country is wary of one great danger. The arrival of GAAR (General Anti-Avoidance Rules) in India, now deferred to 2016, strikes terror in Mauritius’s financial heart. “Money from India is already moving to Singapore. If GAAR happens, Mauritius is finished,” says the former minister. This year, Singapore overtook Mauritius as the leading source of FDI into India. In 2013-14, a fourth of India’s total FDI came from Singapore, reaching $5.98 billion. FDI from Mauritius fell, meanwhile, from $9.5 billion to $4.9 billion in 2013-2014. GAAR will allow India to tax transactions structured solely to avoid tax liability—something legally permissible (so long as it isn’t evasion) at present.
A prominent player in designing Mauritius’s current economic rules, Li feels the country made a big mistake in the 1980s by not setting up a free port like in Dubai or Singapore. “It would have given us the physical appearance of doing business legitimately. Now, it seems we are only funnelling money,” he says.
By Pragya Singh in Port Louis
(The correspondent visited Port Louis as a guest of the Mauritian government)
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