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Why an India-Mauritius tax amendment triggered a stock market slide
Apr 18, 2024
Discover how a tax treaty change caused foreign investors to exit the Indian stock market. Learn why Mauritius allowed this to happen and how it impacted the economy. Explore the new principal purpose test and its global implications.
06:15
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Quick takeaways
- The India-Mauritius tax treaty amendment caused a stock market decline due to changes in taxation rules and FDI inflows.
- Mauritius is reconfiguring its tax laws to align with international standards, potentially impacting foreign investors and financial operations.
Deep dives
The India-Mauritius Tax Agreement and Tax Avoidance
The India-Mauritius double taxation avoidance agreement allowed investors to operate without being taxed twice on the same income, leading to an influx of money into India from Mauritius. Investors would set up businesses in Mauritius to invest in Indian stocks and avoid paying taxes in India, given the low tax rates in Mauritius. To address the revenue loss, the Indian government tweaked the rules, requiring Mauritian entities to pay taxes in India for transactions starting from April 2017, resulting in a significant drop in FDI inflows from Mauritius.
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