India to renegotiate tax treaty with Singapore

It is a natural corollary to Mauritius treaty, says Jaitley

After renegotiating the tax treaty with Mauritius to get the right to tax capital gains, India will go in for a similar amendment with Singapore, the second closest destination through which foreign funds are routed to India.

“Sooner or later, the process will commence and hopefully conclude,” Finance Minister Aruna Jaitley told reporters at the Indian Women Press Corps here.

He, however, did not gives any timeline for conclusion of the treaty with Singapore, which together with Mauritius, accounted for $17 billion of FDI in April-December 2015, when India received $29.4 billion in all.

Although the extension of treaty with Singapore is a natural corollary to Mauritius, India would want to renegotiate it separately since it is a separate sovereign state, Jaitley said.

“Singapore is a separate sovereign state and the Mauritius treaty does not automatically extend there. The principles will have to be applied, but applied through a process of renegotiation,” Jaitley said.

“I am not giving it a timeline, because if you recollect, the renegotiation process of the Mauritius treaty started first in 1996, and it continued till about 2002, and then there was a pause. Singapore was entered into in 2005, and one of the covenants of Singapore was that provisions of what happens in Mauritius treaty would extend to it,” Jaitley said.
He said it would not be proper to fix a timeline unilaterally since the treaty was between two states.

India and Mauritius on May 9 agreed to amend a 3-decade-old clause in a double taxation law that allowed foreign investors to enter India without paying any tax on sale of shares, if they route their money through tax havens such as Mauritius. After the amendment, India gets the rights to levy capital gains on sale of shares by Mauritius companies.

However, the capital gains tax will be levied at half the rate from April 1, 2017 to March 31, 2019, after which the full rates will be effective. Short-term capital gains are taxed at 15% now.