Veena Soyjaudah: “The Rs 12,7 billion assistance for the revised treaty has been peanuts”

The multiplying effects of the revised treaty of the India-Mauritius Double Taxation Avoidance Agreement (DTAA) on the Global Business sector will still be felt as the sell-off of other Management Companies follows, Veena Soyjaudah, CEO, Association of Trust & Management Companies,  says.

Global Business in its initial business model – which is India-centric – is dead and buried. Do you think it is worthwhile to cry over spoiled milk?


The Global Business (GB) industry, which was founded on the India-Mauritius DTAA, has, over the past 20 years or so, significantly contributed to the development of the economy. Unfortunately, this contribution has not been sufficiently quantified, analysed, understood and appreciated.

By scrapping such a model abruptly in a context of local and global economic difficulties, we have compromised certainty in favour of uncertainty and this is definitely not something that calls for celebration.


Particularly as the importance of the GB sector within our financial sector needs not be stressed any further?


Of course. In fact, Global Business licence holders are among the top three main borrowers in the banking sector. For instance, at the end of June 2016, claims on GB licence holders amounted to Rs 46.2 billion and represented 16.3 per cent of total credit to the private sector, next to the Construction and Tourism sector. Further, it must be noted that a few Segment B banks have set up bases in Mauritius, precisely because of good prospects that the GB sector offered.

Consequently, the GB industry has an important bearing on the performance of those Segment B banks and, by extension, has helped significantly in bridging the gap in the balance of payments which would have been in deficit had it not been for the contribution of the GB sector to our forex reserves.

Equally, the GB sector has been instrumental in maintaining a healthy exchange rate which in turn has supported our fight against imported inflation. The transformation of Ebene city and the numerous buildings that have mushroomed over the past ten years is a clear reflection of how the construction sector has expanded. With the construction sector goes the cement subsector and iron/ steel subsectors which have also benefited from the GB industry due to growing demand for office spaces.


Should we understand from your views that the GB sector has also had multiplying effects on oth- er sectors of the economy?


It is not to be excluded that other related sectors have also been positively impacted by the GB industry such as the tourism sector as foreign directors of GBL1 companies regularly travel to Mauritius for board meetings and spend lavishly in the country. Most importantly, thousands of direct employment have been created in the sector as well as indirect employment opportunities namely in the IT field and subsectors such as food/restaurants and services such as taxis.

s such as taxis. You may wish to recall that the International Monetary Fund specialists have highlighted the importance of the GB sector in the Article IV Mission Report on Mauritius released in March 2016. The Report recognised that the Global Business sector is a source of economic dynamism on the back of a DTAA Treaty with India. It was also stated that the current account deficit would be fully financed, with continued substantial inflows from Global Business Companies and that international reserves would continue to build up above 6 months of prospective imports accordingly.

“The amendments to Clause 13 are highly detrimental to the GB sector, the financial sector and the country as a whole.”

If we need to come over again on this fiscal amendment, the famous Clause 13 of the Capital Gains Tax imposed by the Indian authorities, would you say that we have taken the wrong decision in accepting a peanut compensation (Rs 12,7 billion) given the volume of Foreign Direct Investment that India will attract through the offshore sector? Would you say that our negotiators have mishandled this issue?


The negotiations were under way to secure a reasonable Limitation on Benefits to enable Mauritius to maintain the Clause 13 benefits in line with Base Erosion and Profit Shifting Action 6 measures and India’s buy-in was progressing positively, despite contrary affirmations. Thus the amendments to Clause 13 were most unexpected, came as a surprise and are highly detrimental to the GB sector, the financial sector and the country as a whole.

It was a general understanding that the Termination of the India-Mauritius Treaty was not on the agenda and we fail to understand its rationale given the historical relationship that Mauritius shares with India. The GB sector remains a solid contributor to government revenue namely through direct contribution in the form of fees paid to the Financial Services Commission and the Registrar of Companies coupled with indirect contribution through VAT and fees and taxes collected amounting to around Rs 8 billion annually once the multiplier effect on the economy is taken into account.

When looked at from this angle, one would see the Rs 12.7 bn as relatively insignificant or, if you prefer, a “peanut compensation”, to use your own words! From an industry’s perspective, stakeholders were more in favour of mutual trade rather than a one-off aid. Singapore, as we can see, is still playing a patient game. Mauritius could have worked to- wards a durable situation in the mutual interests of both countries. Until such a time when other treaties are negotiated with countries such as Singapore, Netherlands, France, etc, Mauritius should have been more patient to secure its long term interests.


In the meantime, Korea has secured better terms with India following negotiations on the revised treaty?


You are right. Korea has secured better terms in its revised DTAA with India.

First, source based taxation of capital gains arising from alienation of shares comprising more than 5% of share capital in contrast with the re- vised India-Mauritius DTAA where capital gains on sale of all shares are taxable in India.

Further, tax arbitration between Mauritius and Korea especially for Foreign Institutional Investors who generally invest in the range of 2 – 3% in one Indian company are permitted to invest up to 10%. Secondly, in order to promote cross border flow of investments and technology, the revised Korea-India DTAA provides for reduction in withholding tax rates from 15% to 10% on royalties or fees for technical services and from 15% to 10% on interest income. Korea has indeed succeeded where we have failed.


The government is canvassing a new model, one using Mauritius as a stepping stone to assist foreign investors to set up business in Africa. Specialists are of the view that Mauritius can develop a debt market which can be instrumental to Africa’s economic and financial development. Do you share this opinion?


The intention is good but in practical terms, the actual results might be below expectations. Africa is a promising continent but has yet too many constraints that might not favour this initiative. Political and social instability, corruption, poor infrastructure, poor air access, inadequate legislative and regulatory frameworks are all reasons to believe that Africa remains a difficult continent in that field. Opportunities may exist but it will take time to attract investors who would rather prefer more established and well-regulated regions as they wish to minimise risks and uncertainties on their investments. History shows that Africa is a ‘slow’ continent and things take time to happen there. Investors need to be convinced of the contrary for this new model to work.

Having said that, there exists a potential in the field of debt structuring in India which hitherto was out of bounds for Mauritius. This new avenue will require us to adapt to the realities of a new business model which could potentially mitigate, to some extent, the loss of the equity business model that prevailed until the notorious Protocol came into being. However, as all new businesses carry risks, uncertain- ties and have a lead time, so does the debt business. We do not expect quick gains on the debt structuring business front and can only hope that the debt market emerges around the same time as the equity business exits our shore. If not, God helps us!


Up to now four Management Companies (MCs) have registered collateral damages resulting from the treaty amendments. Do you think others will experiment the same fate?


Management Companies that have focused on the India-Mauritius DTAA are bound to be potential victims as their future has become blurred as a result of the Treaty amendments. We may recall that the recent takeover of a large MC by a UK company was commented as a “strong vote of confidence” for the Global Business sector. However, the other side of the coin is that it may equally be “a vote of no confidence” in the GB sector that has prompted the sellers to sell off “a flourishing business”. Financial analysts have argued that one doesn’t sell one’s jewel in the crown unless one perceives the risks attached to that jewel.

Financial analysts have also pinpointed that the selling price would have been higher had it not been for the re-negotiated DTAA. The selling party has been in this business for so many years, has set up a solid foundation, has been through thick and thin, knows all the inherent risks and is aware of all the existing and future prospects. In fact, press reports indicate that the selling party has found that the benefits of selling the business now far outweigh the risks and the long term gains of staying in business. There are no reasons that preclude us from believing that other MCs would not follow suit, given the current circumstances. Alternatively, such MCs will have to struggle hard to survive. But let us give time its time.


Are you anxious about the young graduates and professionals who will be facing difficulties to be recruited by the Global Business Sector?


Indeed. The prospects that existed in the financial services sector, mainly the GB sector prior to the Treaty amendments are no longer present. Over the past years, thousands of students have opted for university studies in finance/law/management/ economics and related subjects as a result of interesting opportunities available in the GB sector. Post the revision of the DTAA with India and the ensuing consequences, those students may now see the future with a lot of pessimism because of employment uncertainties.

The GB sector was very dynamic in terms of movement of skills and competencies. There were enough opportunities for new entrants, for partly/fully qualified people as well as partly/fully experienced individuals and matured professionals. We have noted that GB operators have frozen their recruitment exercises significantly and are even downsizing.

It is not to be excluded that if our young graduates and professionals are not retained, they might look abroad for better opportunities that suit their qualifications/experience and aspirations, which can result in a serious brain drain. And this is one of the worst things that can happen to our country especially at this stage of our economic development.