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  3. Put off GAAR by 3 years: PM’s panel

Put off GAAR by 3 years: PM’s panel

03 Sep 2012 Evaluate

In a development aimed at reviving the inflow of foreign capital, the expert committee on General Anti Avoidance Rules (GAAR), headed by Parthasarathi Shome, has recommended postponement of the contentious anti-avoidance tax provisions by three years till 2016-17. The draft report, which has been submitted to the finance ministry, has also sought comments from the stakeholders by September 15.

In the wake of outrage by foreign investors, the Prime Minister Manmohan Singh appointed a four-member committee headed by noted economist and tax expert Parthasarathi Shome to rework on GAAR, a measure to check tax evasion, proposed in the Union Budget 2012-13, which was later deferred till April next year. However, the shome committee, among other things, also recommended a breather for Mauritius-based entities and an abolition of capital gains tax for listed securities. Committee in its draft report suggested that GAAR provisions should not be invoked to examine the genuineness of the foreign investor entities’ residency in Mauritius, which is the most preferred route for foreign investments because of the liberal taxation regime in the island country.

Meanwhile, in a move to cheer the stock markets, the government tax panel has also advocated Abolishment of capital gains arising from transfer of listed securities whether in the nature of capital gains or business income to both residents as well as non-residents. However, in order to neutralize the impact of the proposal, the panel suggested that government to consider increasing the rate of Securities Transaction Tax (STT) appropriately.

Furthermore, the panel besides recommending monetary threshold of Rs 3 crore of tax benefit or more for application of GAAR provisions, has expanded the scope of the general anti-avoidance rules, by recommending inclusion of all Non-resident Indian (NRI) taxpayers into the ambit of the rules.

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