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May 31, 2000
Swamy, leftists demand action against Yashwant Sinha
Amberish K Diwanji in New Delhi
Finance Minister Yashwant Sinha is facing flak from various quarters. His move to 'let off' Mauritius-based foreign institutional investors, or FIIs, over the double taxation issue has snowballed into a major controversy.
The latest to fire a salvo at the finance minister is Subramanyam Swami, president of Janata Party. In a media statement, Swamy has described Sinha's denial of favouring Mauritius-based FIIs as "wholly unconvincing".
Meanwhile, the Communist Party of India-Marxist, or CPI-M, called for Sinha's resignation and withdrawal of the double taxation avoidance treaty that "was being misused by FIIs to avoid paying taxes in India".
"If Sinha wishes to clear his name, he should ask Prime Minister Atal Bihari Vajpayee to refer the entire matter to the Central Bureau of Investigation, or CBI. Or he should advise the prime minister to grant sanction on my petition to prosecute Sinha for offences under the Prevention of Corruption Act for causing huge losses to the nation," Swamy said.
He said that his petition seeking sanction to prosecute Sinha on the 'favoured treatment issue' was pending with the prime minister for the last ten days. The prime minister has the authority to give sanction to prosecute ministers when they commit offences under the said Act, Swamy said.
Earlier, on Tuesday, CPI-M spokesperson Sitaram Yechuri said at a press conference in New Delhi that the core issue was the Central Board of Direct Taxes circular number 789 which stated that to prove residence in Mauritius, a letter to that effect would suffice.
He said that this was done to benefit the Sinha family, a reference to Sinha's daughter-in-law Punita Kumar Sinha who is an investment manager with India Fund Inc, a foreign institutional investor headquartered in the US.
A CPI-M statement said that India Fund Inc 1999 annual report said that the company had opened a branch in Mauritius for the purpose of tax residency.
The statement charged that India Fund Inc routed all its investments through Mauritius to avoid paying taxes.
Yechuri said that the assets of India Fund rose from $300 million to $ 700 million in 1999 but that company had not paid one paisa in tax in India, from where it earned the profits. Neither had India Fund Inc paid any tax in the Mauritius since that island nation did not charge capital gains tax nor did it pay tax in the United States since the profits were earned outside of that country.
He pointed out that Mauritius did not have a capital gains tax, thus enabling FIIs to avoid paying any tax in India. "In India, a company pays a dividend tax at source or if he sells off the shares, he pays a capital gains tax on the profits earned. In the case of Mauritius, when that country does not have such a tax, how can they charge the tax?" he asked.
Yechuri claimed that out of 521 FIIs registered in India, only one was registered in Mauritius.
He said that any double tax avoidance agreement, such as the one signed between India and the United States, explicitly states that the profits must be paid in the country where they are earned. This clause was avoided in the case of Mauritius since it did not charge a capital gains tax, he said.
The CPI-M's central committee charged the finance minister with preventing the Income Tax department from performing its legitimate action of claiming taxes from such countries that were fraudulently cheating India.
Yechuri said that every year India was losing tax revenue worth Rs 30 billion. "This is based on the fact that Rs 400 billion has been invested in the stock markets by the FIIs and that the dollar stock market index has appreciated 80 per cent," he added.
"This revenue has been denied to our country at a time when the government is lamenting about the lack of resources and the need therefore to cut down on taxes," said Yechuri.
Drawing a comparison, he said that food subsidies to the poor cost only Rs 11 billion. "This is about one-third of the revenue that India has been cheated out of," he charged.
Yechuri said that it was the involvement of Sinha's family members in some of the FIIs that made the finance minister get the CBDT to issue circular no 789 which force the IT department to recognise Mauritius-registered companies as Mauritius-based companies and, therefore, eligible for tax avoidance.
"Prior to the CBDT circular no 789, residence in a particular country was proven by proof of the residence of the company's management. But what we have in Mauritius are post box addresses, wherein companies give certain post office box numbers as their registration address in Mauritius and are recognised as being based in Mauritius. Thus, they don't have to pay a tax on their profits," Yechuri said.
Blasting the Vajpayee government for committing a gigantic fraud upon the Indian people, the CPI-M demanded that the treaty with Mauritius be scrapped immediately.
"Any treaty with any country that hurts the Indian economy must be scrapped," said Yechuri.
The CPI-M politburo member also criticised Mauritius. He said that Mauritius was luring companies by promising to be a tax haven with minimal taxes. "Mauritius even advertises that it is ready to help companies avoid paying high taxes by helping them speedily set up residence in their country," he said.
Yashwant Sinha was not available for comment since he is currently in the United States.
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