Singapore has toppled Mauritius and became the top Foreign Direct Investment (FDI) source in India. Now the inflows from Singapore were twice that from Mauritius during the last financial year as companies opted to route funds into india via the southeast Asian city-state, instead of the island nation in the Indian Ocean, the most preferred route for overseas flows so far, after the tax treaty with both the countries was reworked.
The latest data released by the government showed that in 2018-19, inflows from Singapore were estimated at $16.2 billion, compared with $8.1 billion from Mauritius. This is only the third time that inflows from Singapore have topped those from Mauritius with investment advisers attributing the change to the revamped tax treaty.
After 33 years, India and Mauritius had agreed to amend the tax treaty, allowing authorities in the country to tax capital gains on transfer of Indian shares acquired from April 2017. A similar amendment was made in the tax treaty with Singapore, which also came into force from April 1, 2017. Unlike the tax treaty with Singapore, the original pact with Mauritius did not require “significant presence”.
As a result, since April 2000, 32% of the inflows have come through Mauritius because investors from the US, the UK and Germany too opted to route their investment via this window. Tax consultants said given the parity in tax treatment now, investors are preferring to route investments via Singapore. “The choice of source of investment depends a lot on the bilateral tax agreement. Besides, Singapore offers other advantages on the ease of doing business front,” said Dhiraj Mathur, who was involved with FDI policy before turning a consultant.
Akash Gupt, partner and leader for regulatory practice at PwC India, said the presence of a large number of private equity investors in Singapore also helped boost inflows into India. “Now that there is tax neutrality, people are opting for Singapore as it is more accessible and approachable and offers tax incentives through lower tax rates if you locate your regional headquarters there,” added EY India’s Rajiv Chugh.
Besides, companies such as Walmart, which acquired Flipkart, made the payments in the island nation as the e-tailer was registered in Singapore. As a result, the fresh investment of $2 billion came through Singapore. The change is significant since a decade ago, inflows from Mauritius were almost four times the investment from Singapore. The full year FDI data also showed FDI into the country went up 6% to top $64 billion.
In terms of sectors, there was an increase in sectors such as automobiles and chemicals but a bulk of the rise was in the services such as finance, outsourcing, R&D and courier, the numbers showed.