Jun. 8 – The Securities and Exchange Board of India (SEBI) will slow the issuing of licenses for foreign investment vehicles based out of the South Indian Ocean tax haven of Mauritius. Speculation is high that the Indian government is using subtle pressure tactics to try and rework a bilateral tax treaty signed 28 years ago.

The current treaty allows investors from Mauritius to enjoy tax-free capital gains on investments in India, whether short term, long term, on the stock market, or off the market. Domestic investors meanwhile, must pay 15 percent on short-term capital gains and are also taxed on long-term capital gains if the asset is sold off the stock exchange.

Many companies and individuals have exploited this loophole, and India now wishes to introduce steps that will ensure that investment vehicles originating in Mauritius are not just shell companies for enterprises wishing to avoid paying taxes in India.

Licenses for foreign institutional investors and foreign fund investment vehicles are up for renewal every three years. The bureaucratic renewal process typically takes between a week to 10 days, but many have recently reported delays. In contrast, investment funds from non-treaty destinations have been able to renew their licenses without any such delay.