Chambers heave a sigh of relief
The government’s announcement of deferring the General Anti-Avoidance Rules (GAAR) led to the industry heaving a sigh of relief. However, critical voices have said addressing concern was good, though the government also needs to introduce positive policies.
Industry chambers also found the clarifications by Finance Minister Pranab Mukherjee on the retrospective amendments to the Income Tax Act convoluted. They, however, expressed happiness that some of their proposals were accepted by the minister. Industry has been calling for deferment of the GAAR and a detailed discussion on the issue.
Postponement of the GAAR would enhance the confidence of global investors, the chambers have said.
R V Kanoria, president of the Federation of Indian Chambers of Commerce and Industry, said, “I hope it is not merely a postponement, but they (the ministry) would also relook it and a more realistic GAAR would be introduced.”
GAAR has not only been put off by a year; it would also come with more safeguards. In the earlier proposal of the Finance Bill, the onus of proof rested with the tax assessee, and this was seen as a negative move. Today, the minister announced the onus of proof would be with tax officials. Also, the Bill had earlier proposed that the approving panel for invoking the GAAR would comprise only tax officials. Now, independent voices would also be a part of the panel.
Besides the GAAR, the finance minister also clarified retrospective amendments to the Income Tax Act would not be used to reopen the cases where the assessment was finalised.
“We are happy to note that the government has considered industry views and tax rules would not be used with retrospective amendments on cases where final assessments have been made,” said Ved Jain, chairman of the national council on direct taxes of the Associated Chambers of Commerce and Industry of India.
The finance minister also clarified retrospective amendments would not override double taxation avoidance agreements. These would be applicable to low tax jurisdictions or tax havens.
Industry members said the clarifications by the finance minister were vague.
Earlier, industry had raised objections to retrospective amendments, which were aimed at bringing complicated foreign deals, like the Vodafone-Hutchison one, under the tax net, in case the underlying assets were in India. Amendments were sought to be made after the Supreme Court had ruled against the tax department in the Vodafone case.
In post-Budget interactions with the finance minister, industry chambers had vehemently criticised this stand. “This is probably the worst time for clarifications of intent and interpretation, when there is all-round uncertainty, political consensus is elusive, and there are hiccups in implementation of decisions,” Kanoria had said in one of these meetings.
He had added the industry felt decisions of the court could be overturned, undermining the sanctity of the legal system and questioning the fairness of a parliamentary democracy. However, the finance ministry had rebuffed industry arguments, asking it if it wanted India to turn into a tax haven.
Industry chambers also welcomed the Mukherjee’s move to cut long-term capital gains tax on private equity to 10 per cent and the 0.2 per cent securities transaction tax on deals involving unlisted companies, instead of a long-term capital gains tax.