The Parthasarathi Shome Committee’s draft recommendations on the General Anti-Avoidance Rules are sensitive and bold, particularly in its recognition of the fact that the tax men need intensive training in the intricacies of this very sophisticated tax administration instrument. While recommending the deferment of the implementation of GAAR to 2016-2017 the committee said it would provide time to train tax officers who would specialise in the finer aspects of international taxation. It would also give taxpayers time to fall in line with the changes. The committee has also emphasised that GAAR should be applicable only to arrangements where the main purpose is to obtain tax benefits (such as companies that are merely post-box addresses).
Another bold recommendation is the abolishment of capital gains tax on transfer of listed securities and for the revenue loss to be made up by increasing the securities transaction tax, which at present is a mere 0.025 per cent to 0.125 per cent compared to the 15 per cent capital gains tax.
What is most important is the recommendation that the new GAAR should be announced immediately so that uncertainty is removed from the minds of stakeholders. It is hoped that the government acts immediately and does not postpone it on one pretext or the other, as is its practice.
The implementation of GAAR as announced in the Union Budget presented by Pranab Mukherjee raised a huge furore internationally and domestically with international hedge fund organisations and others threatening to pull out of the country if GAAR, as envisaged, was implemented immediately, or even within a year as was announced later. Besides the concern that it would have been applied retrospectively, the major concern was the real fear of harassment at the hands of the tax men as the onus to prove innocence was on the taxpayer. It would have only meant a huge avenue for corruption with no advantage to the exchequer.
It must be said to the credit of the then finance minister, Mr Mukherjee, that the motive for the announcement was to plug the misuse of the double-tax avoidance treaty with Mauritius which was causing a revenue loss to the already cash-strapped government. But it was done in ham-handed fashion and overlooked the misuse all these years even though it was brought to the government’s notice after every scam.
To allay the fears of the international community the Prime Minister announced the setting up of the Shome Committee a month ago. The committee’s recommendations are bound to allay the fears of international investors and restore confidence, and this could see the stock markets move up on Monday. Industry has already welcomed the recommendations and it is now hoped that they will be implemented without further delay.