This is a bit of a mystery, since India also renegotiated in 2016 its double taxation treaty with Singapore in order to fill exactly the same loopholes as for Mauritius, namely the residence-based taxation on capital gains on the sale of shares. Perhaps Singapore`s strengths other than the financial centre, such as the ability of companies to raise funds at relatively lower rates, and an effective dispute resolution system, will continue to make it a preferred place for Indians to set up businesses. Going back to the main story, Mauritius` huge capital transfer definitively proves that the tax exemptions offered and the ease of setting up shell companies (the two key elements of the double taxation agreement with India, amended in 2016) were the main reasons why it was a capital exporter. After the absence of these advantages, the advantages of the Mauricie have diminished considerably. The dividend tax system has been revised in India`s budget proposal for 2020. The dividend is the portion of a company`s profit that it pays to its shareholders. Under the traditional dividend tax system, the dividend is taxable in the hands of the shareholders. Most countries use this system to levy taxes on dividends. In India, the dividend was previously taxed in the hands of the company at the time of distribution.
The budget proposes to move from this system to the conventional system. After India renegotiated its double taxation treaty with Mauritius in 2016, there have been some positive developments. First, a brief summary: the essence of the 2016 renegotiation was to close the important loophole that made Mauritius a preferred investment route to India.