GAAR panel locks horns with Planning Commission

The recent suggestion of the Expert Committee on General Anti Avoidance Rules (GAAR) headed by Parthasarathi Shome to delay implementation of the controversial tax proposal by three years seems to have not found favour with the Planning Commission headed by Montek Singh Ahulwalia.

“It is certainly true that the committee has to take a close look at GAAR and then suggest what the changes are. It surely couldn’t take three years to implement that. I don’t know what has prompted it,” a senior official of the Commission told Express on condition of anonymity.

Seeking to address concerns of investors, especially foreign institutional investors, the Prime Minister’s Office in July had announced the setting up of the committee to undertake stakeholder consultations and finalise the guidelines for GAAR after widespread consultations so that there is a greater clarity. 

Among other things, the mandate of the Shome-led panel was to vet and rework the guidelines based on feedback received from stakeholders and publish the second draft GAAR guidelines by August 31.

In its draft report submitted to the government, the panel had made a number of suggestions. It has recommended that GAAR provisions should not be invoked to examine the genuineness of the residency of entities in Mauritius.

The committee has also recommended that GAAR be applicable only if the monetary threshold of tax benefit is `3 crore and more.

“The implementation of GAAR may be deferred by three years on administrative grounds. GAAR is an extremely advanced instrument of tax administration – one of deterrence, rather than for revenue generation – for which intensive training of tax officers, who would specialize in the finer aspects of international taxation, is needed. GAAR should be deferred for 3 years. But the year, 2016-17, should be announced now,” the draft report said.

While India Inc had welcomed the deferment of GAAR by three years, it was done more from the point of view of government going out of its way to pacify foreign institutional investors.

The government had earlier postponed implementation of GAAR, which was introduced by the then Finance Minister Pranab Mukherjee in his Union Budget for 2012-13 to check tax evasion, by an year to April 1, 2013.

Earlier, the Central Board of Direct Taxes had come out with draft guidelines on GAAR which did not find favour with Prime Minister Manmohan Singh.