May 30, 2000

The Finance Minister, Mr. Yashwant Sinha, instead of coming clean on the tax haven route that he has opened for Foreign Institutional Investors (FIIs) through Mauritius, has expressed indignation and charged many of us who have raised questions about this gigantic fraud with malice. In the process, the Finance Minister has chosen to ignore all substantive charges.

Is it not the fact that:

1. India has a Double Tax Avoidance Agreement (DTAA) with many countries, including the USA. All these agreements stipulate that taxes are to be paid in that country where profits are made. Eg: If FIIs earn profits in Indian stock markets, then they are to pay the capital gains tax in India and the dividend tax in the USA. The only exception is the DTAA with Mauritius where any company registered in Mauritius need not pay taxes in India.
2. Mauritius does not have a capital gains tax. This being the case, how does the question of double tax arise at all?
3. The Income Tax department in March issued notices to several FIIs to pay the required taxes.
4. The Finance Minister publicly denounced the Income Tax department for the legitimate action that it took.
5. The Finance Minister got the Central Board of Direct Taxes to issue a circular (No. 789) to treat all FIIs registered in Mauritius as residents of Mauritius.
6. India Fund Inc. is a FII incorporated in Maryland, USA. In its annual report 1999, it has stated that it has opened a branch office in Mauritius for the purpose of tax residency.
7. India Fund Inc. routes all investments in India through Mauritius to take advantage of DTAA.
8. India Fund Inc.'s net assets rose from $ 300 million to over $700 million in 1999.
9. India Fund Inc. has not paid a paisa of tax on these profits in India or in Mauritius as there is no capital gains tax there or in the USA since it did not earn profits there.
10. India Fund Inc.'s Investment Manager is Ms. Punita Kumar Sinha, Finance Minister's daughter-in-law.
11. The FIIs have an accumulative investment of over 40,000 crore rupees and impact significantly on our stock markets.
12. Of the 521 FIIs registered with the SEBI, only one is registered in Mauritius.
13. Precisely for this reason, India has imposed a 30 percent tax on short-term gains and 10 percent on year-long gains.
14. These were imposed both to garner legitimate revenue to the exchequer and to protect the stock exchange from volatile fluctuations. But, this Mauritius route has exempted this safeguard making our stock markets vulnerable to violent stock market movements.

As a result of such blatant violation of all existing laws, the country is loosing a potential revenue of over Rs. 3,000 crores annually. This figure is based on the fact that over Rs. 40,000 crores has been invested by the FIIs and the Dollex (Dollar stock market index) appreciated by over 80 percent. A 10 percent capital gains tax would fetch over Rs. 3,000 crores.

Such a gigantic fraud is being committed on the Indian people by this Vajpayee government at a time when it is displaying inhuman callousness in tackling the unprecedented human tragedy caused by the current drought in the country. The Vajpayee government's plea is that it does not have sufficient resources to provide the required relief. At a time when the reports of starvation deaths, large-scale suicides and of people `selling' vital organs, such as kidneys in order to survive, pouring in, this Vajpayee government has chosen to hike the prices of all essential commodities compounding the people's misery. The food subsidy has been slashed by 12 per cent or Rs. 1,100 crores.

It is precisely at such a time that the Vajpayee government is offering a `subsidy' to the FIIs to the tune of over Rs. 3000 crores, ie, three times the cut in food subsidy which adversely affects the livelihood of the millions of our people. Need one say more about its pro-imperialist, pro-rich and criminal anti-poor attitude!