Mauritius Wants To Be To Africa What Dubai Is To The Middle East
Concerned about the impact of tax havens, world powers are tightening the noose on multinationals seeking tax advantages.
India wants changes to its tax treaty with Mauritius, forcing the island’s new government to re-examine its business model and focus elsewhere.
There is debate in the new government, which took office in December, about whether Mauritius was ever a tax haven but there is general agreement that the economy needs to shift focus to make sure firms invest locally and to prepare for any loss of business from India.
“My message for the offshore sector here is: they have to move from a tax haven to a typical transparent financial sector. This is what is happening now,” Finance Minister Seetanah Lutchmeenaraidoo told Reuters.
He wants the financial services industry to deepen investments in Africa to help lift sluggish growth in Mauritius and make it a high-income state by 2020.
“Singapore is to Southeast Asia, what Dubai is to the Middle East, and what Mauritius will be vis-à-vis Africa,” Lutchmeenaraidoo said.
New rules agreed by ministers from the Group of 20 industrialized nations this month to stop companies moving profits to low tax centers and “treaty shopping” for tax benefits combined with changes to India’s tax treaty are increasing the pressure on Mauritius.
India has pushed Mauritius into talks to change to its Double Taxation Avoidance Agreement. Signed in 1983, Mauritius took off as an investment route when India opened its economy in the 1990s.
A Global Business Company 1 (GBC1), the title for “offshore” firms, pays zero capital gains tax in Mauritius, instead of as much as 40 percent in India on some short-term investments.
Such benefits made Mauritius the source for 24 percent of the $24.7 billion of foreign direct investment in India in fiscal 2014-2015, Reserve Bank of India figures show, making it the largest source of FDI.
New Delhi says much of those funds are not really foreign investment but Indians routing money through Mauritius, a practice known as “round-tripping”.
Changes being discussed to the tax treaty would limit the appeal of Mauritius. If a company still chose to be based there, then it would be required, for example, to spend at least $42,700 a year on the island before enjoying treaty benefits.
The changes in India are driving the island’s pivot to Africa. Almost 60 percent of offshore firms registered in the past three years focus on Africa, benefiting from more than a dozen double taxation avoidance treaties on the continent.
Critics say Mauritius is simply becoming a “tax haven” for Africa instead of India, a charge the government denies.
“We need to be able to reassure our friends in Africa that that is not our aim, to siphon money,” said Deputy Prime Minister and Tourism Minister Charles Gaëtan Xavier-Luc Duval. “Our aim is to contribute towards investment into Africa.”
To do so, the government has held talks with insurance firms such as Axa and Prudential on using Mauritius as a regional headquarters. An investment vehicle is being set up with Ghana for technology, poultry, sugar and other projects, with Mauritius firms and money involved.
