Mar 18, 2013, 06.34 PM | Source: CNBC-TV18

Budget 2013: Mauritius shouldn't be preferred route of investment: FM

Clarifying the government's stance on the Double Taxation Avoidance Agreements (DTAA), the Finance Minister P Chidambaram said in an exclusive interview to CNBC-TV18 that Mauritius should not be preferred route of investment.

Clarifying the government's stance on the Double Taxation Avoidance Agreements (DTAA), the Finance Minister P Chidambaram said in an exclusive interview to CNBC-TV18 that Mauritius should not be the preferred route of investment.

"Investment comes from over a 100 countries, so I don't think Mauritius can or should be the preferred route for investment. There are other routes for investment but Mauritius does give a certain advantage to the investor today. If the advantage is enjoyed by genuine Mauritius resident or businessmen, then we have no complaint," he elaborated.

He, however, added that participatory notes (P-notes) holders will not be touched by General Anti Avoidance Rule (GAAR).

Reference of tax residency certificates (TRC) in Union Budget 2013 had sounded the alarm on Dalal Street for which the finance ministry had to issue a clarification that that there was no intention to question tax residency certificate holders and "TRCs will be accepted as evidence of residence."

India's 82nd Budget came as a disappointment to many after Finance Minister P Chidambaram failed to recreate the dream budget he presented in 1997.

Given the fact that this was UPA II's last Union Budget before general elections of 2014, expectations were that the FM would focus on wooing FII investors and attract more inflows into the country.

However, Chidambaram who was presenting his eight Budget chose to play it safe with a pragmatic Budget rather than a populist one.
While the Opposition finds Chidambaram's Budget insipid, rating agency Standard & Poor's says this year's Budget would have no impact on the country's sovereign credit ratings.

Another let down for the country was the Q3 GDP data. India's growth slowed to a 15-quarter low of 4.5 percent in the October-December quarter lower than the 5.3 percent a quarter ago, and the 6 percent growth seen a year-ago. He expects the economy to grow at 6.5 percent in the next financial year.

Below is an edited transcript of his interview with Shereen Bhan.

Q: In your Budget speech, you said we need foreign investment and it is imperative, if we need to battle with the current account deficit. In that context, we then see a red herring in the form of the TRC issue, which you now have clarified 24 hours later. In the mind of a foreign investor there is a disconnect, between what the Indian government says, what the Indian government intends to do and what the Indian government finally does?

A: We are talking about Section 90, sub Section 4 to Section 90 was introduced last year. It is intact, that it has not been touched. In addition, last year in the memorandum explaining the Finance Bill, there was a paragraph; it caused no concern, no confusion last year. The same paragraph word-for-word, without adding a word, without deleting a word has been lifted and put as sub Section 5. Now if it caused no concern last year, it should have caused no concern this year too. Nevertheless some people suddenly discovered that this sub Section 5 had a sinister motive, that the tax department will go behind the TRC and question the resident status of a person. Far from it, there was never any intent to question the residence status of a person who produces a TRC.

I explained it to the media yesterday, and I think the market calmed down. This morning when the market opened there were no jitters on that score. Then, I decided that it is better that the central board of direct taxes (CBDT ) issues a clarification. Following what I clarified to the media yesterday and they issued a clarification.

So, there was no confusion in my mind, there is no confusion in CBDT’s mind. But if some people either genuinely or otherwise misunderstood the language of sub clause 5, which is the same as what was there last year, I can show, I can match it. Then I thought it is best to clarify, that's what we have clarified.

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