Seeks clarity, assurance on taxpayer rights first; suggests exemption for FIIs
The Confederation of Indian Industry is against the introduction of the controversial General Anti-avoidance Rules (GAAR) now.
“In our view, this is not the right time to introduce GAAR in the Income Tax Act, and only after the government can assure a transparent, non-corrupt and fair tax administration should GAAR be introduced,” the apex industry chamber has said in its representation on the draft guidelines, which would be given to the government by Tuesday.
“It is well known that the Indian economy, at the present juncture, is facing headwinds, as global risk aversion caused by the Euro zone crisis, combined with structural imbalances in the Indian economy, is having a deleterious impact on growth. In such a situation, the timing for introduction of GAAR is not right and the implementation of GAAR in its present form would affect investor confidence in India,” CII has said in the representation, which the chamber has sent to select tax experts for their views. In any case, it said, the GAAR guidelines were subjective and prone to misuse.
The industry body said in case a decision was still taken to introduce GAAR, the guidelines should address the uncertainties and provide an assurance that the fundamental rights of the taxpayer would be recognised and protected.
After proposing GAAR implementation from this year in the Budget, former finance minister Pranab Mukherjee announced on May 8 that it would be implemented from April 1, 2013. The finance ministry has put up draft GAAR guidelines for public comments.
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Subsequently, Prime Minister Manmohan Singh has appointed a panel under taxation expert Parthasarathi Shome to look at GAAR norms afresh, with the second draft guidelines to be given by September 30.
CII has said that overriding international tax treaties should be avoided, to revive investor confidence in India. “GAAR should not override tax treaties except in rare cases, and only after an independent, high-powered committee constituted for the purpose has given its consent,” the chamber has outlined.
It feels the GAAR guidelines should clarify the requirement of commercial substance in objective terms. “For example, in this regard, introduction of conditions similar to the LOB clause in the India-Singapore Tax Treaty could be considered,” it said.
“The need to delay introduction of GAAR at the present juncture emanates from the need to invite foreign capital into India to bring growth back to our country, buffeted by adverse global and domestic conditions,” the chamber has stressed, adding that in this context, the concept of “grandfathering” — which would ensure that investments made prior to the introduction of GAAR from April 1, 2013, did not come under the tax department’s scrutiny — should be introduced.
It has also suggested that the approving panel for GAAR should be an independent one, of quasi-judicial members, tax experts and economists; such that the officials who initiate proceedings become answerable to such a panel.
“To encourage more FII (foreign institutional investor) investments into India and to avoid adverse impact on capital markets, the government should look at exempting FIIs completely from GAAR provisions,” it has said, adding that ideally GAAR should not apply to cross-border portfolio investments by FIIs, as the tax collected from them was a meagre Rs 2,500 crore, which does not justify the erosion of investor confidence by invoking GAAR.