ASSOCHAM urges PM to overhaul India’s tax administration; put off GAAR until 2015

Overhauling India’s tax administration for a transparent, less discretionary and inspector raj free regime is the need of the hour and the premier industry body Associated Chambers of Commerce and Industry of India (ASSOCHAM) has urged Prime Minister Manmohan Singh, who has also taken over the finance portfolio, to look in this regard. Looking at the ongoing flip-flop over the contentious taxation issues, the industry body has also urged government to defer implementation of General Anti-Avoidance Rules (GAAR) provisions until 2015.

The apex chamber opined that the recent dilly dallying over GAAR provisions has created a bad perception about Indian tax laws among global investors. The body also highlighted that introduction of goods and services tax (GST) would be a landmark that can bring drastic changes in the tax administration.

Citing that the implementation of GAAR provisions will have serious implications for the tax-payers and investors - both domestic and global, ASSOCHAM suggested government that no rush job should be done since India can ill afford to send a signal suggesting there is no stability in taxation policies. The final draft of GAAR provisions must be placed before Parliament only after exhaustive evaluation of every parameter of GAAR after holding consultations with industry, tax planners, legal professionals and tax administrators.

Moreover, the premier industry body, which represents the interests of industry and trade, interfaces with Government on policy issues, highlighted that since the process of consultation and detailed evaluation would be a big exercise, the duration of one year for implementing its provisions will not be sufficient. Thus stating that implementation of GAAR is wrongly timed; ASSOCHAM advocated the idea of putting off the proposal well beyond April, 2013, at least up to 2015.

At a time when the benchmark equity indices in India are already struggling to gain momentum due to a host of domestic as well as global concerns, India can hardly afford to scare away foreign funds and investors, which have been the main driving force for local bourses. Calling foreign institutional investors (FIIs) a highly sensitive tribe of investors, ASSOCHAM pointed towards perceptions made and destroyed by FIIs about countries in short times and said the negative perception will feed on itself and influence the credit rating agencies, which has been seen already in case of India.

Former Finance Minister Pranab Mukherjee, who is now seen by many as the frontrunner in the race of becoming President of India, in his Union Budget 2012-13 had proposed the GAAR provisions to curtail tax evasion. The provisions had invoked sharp criticism from the foreign and domestic investors, following which the government constituted a high-level committee to look into their concerns.

According to some estimates, Indian markets had lost around Rs 1 lakh crore or about $20 billion worth of investments from the overseas funds and ultra-rich foreign individuals over the three month period between March and May on new taxation proposals and the government's recent white paper on Black Money. General Anti-Avoidance Rule (GAAR) remained the buzzword over last three months in the financial circles and though not many knew about the nitty-gritty’s of it, most witnessed how talks surrounding its implementation from April 1, 2012 rattled foreign institutional investors (FII), which in turn triggered a free-fall off sorts in Indian stock markets.