GAAR to be reworked as PM wants new plan

Panel set up to provide fresh guidelines and execution road map by Sept

Prime Minister Manmohan Singh today indicated the General Anti-Avoidance Rules (GAAR) would be written afresh, as the government strove to undo the damage to investor sentiment seen after the rules were proposed in the Budget.

A new panel headed by taxation expert Parthasarathi Shome, the head of ICRIER (Indian Council for Research on International Economic Relations) and a former adviser to the finance minister during P Chidambaram’s tenure between 2004 and 2008, will draft fresh GAAR guidelines and prepare a road map for its implementation to be submitted to the government by September 30.

N Rangachary, former Irda chairman, Ajay Shah, professor, NIPFP (National Institute of Public Finance and Policy) and Sunil Gupta, joint secretary, tax policy and legislation, department of revenue, are also on the panel.

THE ANTI-AVOIDANCE STORY SO FAR

• February 27 Committee on General Anti-Avoidance Rules (GAAR) formed by the CBDT
   
• March 6 First meeting held
   
• March 16 GAAR provisions announced w.e.f. April 1 by the FM in his Budget speech
   
• March 17-23 Confusion over P-notes, FIIs. Adverse reactions from consultants, foreign investors and stock markets
   
• March-May Several meetings of GAAR panel to review provisions
   
• May 28 Date of implementation extended to April 1, 2013
   
• June 28 Draft guidelines issued, P-notes exempted, only prospective effect, deadline for comments fixed as July 20
   
• July 9 Panel meets FIIs, PE investors
   
• July 13 PM sets up new four-member panel under Parthasarathi Shome to finalise the guidelines by Sept 30

The government has apparently tried to rope in the best taxation brains to soothe the nerves of foreign investors, which according to the chairman of the prime minister’s economic advisory council, C Rangarajan, was the intent behind introducing GAAR.

Within a fortnight of the finance ministry having put up the draft guidelines in the public domain, the PM today approved the constitution of the expert committee on GAAR to hold consultations with stakeholders.

Singh had asked ministry officials to address tax concerns and the draft guidelines were put up on the ministry website the next day. Within hours, his office had clarified that the prime minister had not seen the draft guidelines and the final version would come only after his approval.

A prime minister’s office (PMO) release said on Friday the committee under Shome would vet and rework the guidelines based on feedback and publish the second draft by August 31.

The final guidelines would be submitted to the government by September 30.

“A need was felt for more widespread consultations. There is a need to have greater clarity on many fronts. With this in view, the PM has constituted this expert committee, which will bring transparency and a high degree of technical expertise to the consultation process,” stressed the PMO.