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Leftists demand FM's resignation

Amberish K Diwanji in New Delhi

The Communist Party of India-Marxist, or CPI-M, has called for the resignation of Finance Minister Yashwant Sinha and withdrawal of the double taxation avoidance treaty with Mauritius and other countries that were being misused by foreign institutional investors to avoid paying taxes in India.

Addressing a press conference, CPI-M spokesperson Sitaram Yechuri said that the core issue was the issue of 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 parivar', 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 (tax deducted 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 FII's registered operating in India, only one was registered in Mauritius.

Pointing out that any Double Tax Avoidance Agreement, such as the one signed between India and the United States explicitly stated that the profits must be paid in the country where they are earned, he said that this clause was avoided in the case of Mauritius since Mauritius did not charge a capital gains tax.

In a statement issued by the CPI-M's central committee office, it charged finance minister Yashwant Sinha 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 PO Box numbers as their registration address in Mauritius and are thus recognised as being based in Mauritius and thus 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 DTAA with Mauritius be scrapped immediately and all companies that have benefited from it in the past be made to pay their due taxes immediately.

"Also, any such DTAA with any country must be scrapped since it hurts the Indian economy," said Yechuri.

The CPI-M politburo member also criticised Mauritius which 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.

Meanwhile, Yashwant Sinha was not available for comment since he is currently in the United States.

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