The Indian Financial Express reports depressing news this morning, noting that:
Giving certainty to foreign investors, the government is likely to put off the controversial general anti avoidance rules (GAAR) by at least two years.
The decision, likely to be a key announcement of Budget 2013-14 is the lynchpin of a series of measures to help revive investments from abroad in the economy, especially at a time when the government has little space for fiscal sops.
The step underscores finance minister P Chidambaram's announcement on Wednesday. “I would like to once again underscore the crucial importance of FDI and FII. As I have said before, attracting foreign funds to India has become an economic imperative, ” he told reporters at a briefing about the worsening current account deficit.
A senior official said, “Investors have been wary of the Indian economy ever since proposals relating to GAAR and retrospective taxation were announced. Deferring roll out of GAAR would give a lot more tax certainty to them, which is crucial for reviving growth”.
Now this is speculation, of course, and probably highly biased speculation at that: most of the press signs to the tune of big business the world over. But if it is true then it is worrying.
GAARs do not reduce certainty for business: they increase it. What they make clear is that tax is not a matter for their judgement, as Martin Sorrell would wish, but is a matter of complying with the law. In that case what India is actually indicating is that it's going to allow another two year period where tax payment is optional, rather than compulsory.
And that's the worst possible course of action for an economy that wants to build an honest, fair level playing field on which all can prosper.
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GAAR’s only increase certainty for business if there is a clearance procedure (which i believe was one of the key recommendations for the UK), otherwise you have a period of 10 years or so of uncertainty until the case law surrounding the GAAR builds up – other countries experiences of the GAAR show this to be the case.
maybe thats why the UK GAAR was watered down so much (as there is no clearance procedure proposed) – just a thought?
I disagree
You just comply with the law and the uncertainty goes away
GAAR is being diluted and I am convinced it is because of Dr. Parthasastry Shome Committees’ final recommendations which even the CBDT has not welcomed. They have occasion to recommend and make reference to GAAR which is proposed in UK to make their case look more convincing. But I am sure rummaging through your site the one in UK only aims at pre-packaged sort of arrangements and is more tilted to the whims of the big businesses or corporate. GAAR’s dilution I have occasion to criticize on many counts. Firstl, it speaks of its inapplicability to Mauritus like deals based on obtaining of tax residency certificates and speaks to validates circular 789 of the department. Secondly, it asks the tax authorities to leave the part of the agreement or arrangement which is not abusive but it appears strange as there are steps in any arrangements, the impact of which is there as a whole quite significant and it is to be read as a whole not piecemeal. On third count, it suggests postponement which significantly would mean a go lenient on Vodafone like cases which is being assailed in Supreme Court based on McDowell &Co 1985 judgment which I also vociferously called upon in my article in CAClub site on 3rd March, 2012 for review based on five bench judgment than now of three bench. The GOI is not caring to see that huge Rs.40000 crore involved in these litigations currently would get impacted besides, the various tax planning arrangements currently under review as most of the revenue is coming to kitty of tax authorities in TP cases.
GAAR’s postponement was resisted by CBDT in India and the recommendations of Dr.Shome committee to that effect is also seen as an effort to please the foreign investors. The reasons for its postponement we’re quite whimsical saying it ire quirks tax officials to understand the complex law. Infant, the committee has diluted the effectiveness of the GAAR provisions. It recommended its inapplicability to circular 789 making Muritius like agreements valid based on tax residency certificate which has been severely criticized by many on account of round tripping and cell companies structures there. The GOI can I’ll afford to postpone GAAR and it is a fact that in India TP adjustments are bringing in more revenue collections as these are copiously carried out by multinationals in shifting of their profits.