Rangarajan for stable tax policy in short run

Comments came amid government review of amendments to Income Tax Act and GAAR

C Rangarajan, who heads the Prime Minister's economic think tank, today prescribed that uncertainties in tax policy should be minimised at least in the short term and forward looking changes be made only in the medium term. His comments came amid government reviewing amendments to the Income Tax Act and the General Anti-Avoidance Rule (GAAR).

"The investor should be confident enough that no sharp changes are likely to be there at least during the implementation of the project," the Prime Minister's Economic Adviser chairman said at a seminar on tax reforms and tax administration.

He said the investors, whether domestic or foreign, should be sure that the tax rebate on green-field projects, environment savers, export- related incentives, and backward area concessions would not be changed.

"Sunset clauses, if any, need to be explicit," Rangarajan said.

He did not specifically named retroactive amendments to IT Act and GAAR. However, these two provisions of the Budget evoked wide-spread criticism from investors. Following this, the government had appointed a committee under the head of tax expert Parthasarathi Shome to review these provisions.

The panel recommended deferment of GAAR, which was proposed to come from financial year 2013-14, by three years.

On retrospective amendments, it prescribed that generally amendments be made applicable from future date and not retroactively. In rare cases, where new provisions have to be made effective from retroactive effect, tax should be asked from the one making capital gains.

The government had slapped a Rs 11,000 crore tax notice to Vodafone for its $11 billion overseas deal to acquire Hutch stake in then Hutchison Essar (now Vodafone India).

Rangarajan also expressed the hope that legislations to roll out GST would be passed soon.

He said the contentious issues like compensation to states for loss of revenue due to reduction in Central Sales Tax rate and the issue of autonomy of states, are nearing solution.

"It is hoped that the GST legislation would be passed soon," he added.

Parliament's standing committee on finance is yet to submit its recommendations on constitution amendment bill to enable levying of GST. GST also requires separate legislations by states and the Centre on the new indirect tax system.

Rangarajan said GST and proposed Direct Taxes Code would establish an economically efficient, cost effective and transparent tax sytem, but other taxes at the state level need to be further reformed.

He also prescribed that specific purpose taxes or levies should be utilised only for the purpose for which these are levied. "This is important to provide confidence to the taxpayers that the government indeed deserves to collect such taxes. This is illustrated through the education cess levied by the Centre." End