Fears over TRC were exaggerated because, as Mr Chidambaram explained, the same paragraph was there in his predecessor’s Budget
The humility with which Union finance minister P. Chidambaram tirelessly explained the unnecessary fears over the tax residency certificate (TRC) to hyper TV channel anchors in order to calm the stock markets and foreign investors is admirable.
These fears may not be totally unfounded as the tax sleuth in India is generally a dreaded species, particularly to those who find themselves at loggerheads with the tax laws rightly. But the fears were highly exaggerated because, as Mr Chidambaram explained, the same paragraph was there in his predecessor’s Budget, which had said that “a TRC shall be necessary but not a sufficient condition” to take advantage of the Double Taxation Avoidance Agreement (DTAA) with Mauritius. This sentence was cut and pasted onto the Finance Bill of the Budget he delivered on Thursday. Mr Chidambaram clarified that the tax man would not question the legitimacy of the TRC.
This allegedly offensive sentence was played on by entities that want to muddy the waters for their own agendas. Its only shortcoming is that it could have been more expansive. It is a fact that while the TRC is a must to be eligible for the DTAA, it is not the only requisite. The entity behind this TRC had to also be the beneficial owner of the dividends, interests etc. to claim benefits under the treaty. Mr Chidambaram clarified this too.
Mauritius is a favourite route for investors. According to figures available, nearly 42 per cent of foreign direct investment and 40 per cent of foreign institutional investment come to India via Mauritius. They are mostly entities from third countries who use this route to save on capital gains tax.
It has been known, particularly after the Ketan Parekh scam of 2002, that the DTAA is misused blatantly, and with impunity, by people not resident in Mauritius. They merely have post office addresses and it is this that India is seeking to curb. These post office addresses are available on the Internet and this practice leads to a huge loss in tax revenue to India, which, surprisingly, is never discussed by television anchors or in other media as they mouth the fears of expensive lawyers speaking on behalf of their clients.
Mr Chidambaram often had to remind interviewers on TV to consider who they got their information from and how they chose only certain people on their panels.
His explanation calmed the markets the day following the Budget when the bears used these fears to hammer the Sensex down by over 300 points. Sometimes one has to stoop to conquer. The FM did this
honourably.
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