The revenue authority has decided to revise the decade-old double taxation avoidance (DTA) treaty with Mauritius, in a bid to limit the scope of capital flight.
Capital flight is a large-scale exodus of financial assets and capital from a nation due to events such as political or economic instability, currency devaluation or the imposition of capital controls, as per Investopedia.
Earlier, in 2012, the National Board of Revenue (NBR) signed the DTA agreement with the tax haven island with a provision of huge royalty and tax benefit on the interest amount of its investors.
Now, on its move to revise the treaty, titled 'The avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income', a four-member delegation of the NBR, comprising senior tax officials, will visit Mauritius from January 16 to 20 next.
Mauritius remains one of the attractive countries for the Asian investors for the last three decades due to its low-tax system, though it has started overhauling the tax regime during the last six years.
Regarding the upcoming visit, a senior tax official said the scope of tax benefit would be reviewed based on the current context.
He said Mauritius has a considerable amount of investment in Bangladesh.
"The country (Mauritius) ranks 18th in total investment and 10th in net investment in Bangladesh," he said.
According to a study of NBR, Mauritius ranks 10th in investment in the ready-made garment (RMG) sector of Bangladesh.
It also has the third largest investment in the agriculture sector and the sixth largest in the power sector.
The official said the main focus would be to ensure source tax on the digital economy in the DTA treaty.
The NBR would follow the model of the Organization for Economic Cooperation and Development (OECD) to revise the protocol of the treaty.
The NBR started the move to revise the DTA agreement with Mauritius on February 10, 2020.
Following consensus of both the countries, the delegation of Bangladesh would visit the tax authority of Mauritius for cutting down wide-spread tax benefits in repatriating the royalty and interest amounts.
The official said investors of Mauritius would also be able to have a clear picture on levied taxes on them after reviewing the outdated DTA treaty.
Bangladesh has a total of 40 DTA treaties with different countries across the world.
DTA agreement helps investors and foreign workers to avoid payment of taxes in both the countries.
NBR officials said many of the DTA treaties have turned outdated now and are under review of the tax authority.
Following pressures of international regulators, Mauritius has dropped some of the provisions of its previous tax laws in recent years.
In October 2021, the country backed the international agreement to introduce a global minimum effective corporate tax rate and force multinationals to declare profits and pay more taxes in the countries where they carry out business, according to a report published by Financial Times (FT).
In October, 2021, the Financial Action Task Force, the global money laundering watchdog, removed the island from its list of jurisdictions under increased monitoring.
In January, 2022, the EU similarly took Mauritius off its list of countries needing close monitoring for money laundering and terrorism financing, the FT reports.
NBR officials said Bangladesh is a country that earns from source taxes of the businesses, including digital one.
Rationalisation of the source tax deduction from the foreign investors in the DTA treaty is one of the major tasks under the review, they added.
Mauritius tax system is simple and easy to understand with no withholding and capital gain tax that also attracts businesses to invest there.
It has a corporate tax rate at 15 per cent, which is lower than that of Bangladesh charging a minimum 20-45 per cent.
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