I have already mentioned in my earlier posts about meaning of GAAR. GAAR is General Anti Avoidance Rules. Assocham said that the government should put off implementation of GAAR until 2015 as these have created a bad perception about Indian tax laws among global investors. But Finance Ministry has put out a comprehensive draft of new guidelines for GAAR. Here are facts about this draft:
1. Finance ministry said that GAAR will come into effect from April1,2013. Through releasing draft, finance ministry committee stated that FIIs not opting for treaty benefits and ready to pay taxes will not come under GAAR, but those opting for dual taxation avoidance agreements will come under its purview.
2. Draft rules clarify that provisions of GAAR would not be invoked on non-resident investors of Foreign Institutional Investors.
3. The deferment of GAAR provided a much needed boost to the equity markets as well as the rupee.
4. After few days, government announced that the government will have an independent member on the approving panel for GAAR. The approving committee will be headed by director general of Income Tax, would give recommendations for formulating rules and guidelines for the implementation of GAAR provisions and to suggest safeguards so that provisions are not applied indiscriminately.
5. In April, FIIs asked the government to remove the applicability of GAAR to foreign portfolio investment. They argued that no country taxed foreign investment in any stock market around the world.
6. In response to FIIs plea, Finance Secretary R.S. Gujral clarified that GAAR will keep FIIs paying taxes out of its ambit, but will cover those which are investing through tax havens.
7. The then Finance Minister, Pranab Mukherjee, said that holders of promissory notes will have no tax liability.
Now Assocham said that Government must discuss every parameter of GAAR with industry, tax planners, legal professionals and tax administrators, so that a well thought proposal is placed before parliament. As it is a big exercise, one year time for its implementation is not enough. He said India cannot afford to scare away investors in stock market when halting capital outflow and sliding rupee are big concerns. Introduction of goods and services tax would be a landmark that can bring drastic changes in the tax administration. If tax breaks are given to promote savings and investment, tax payers should be free to do his tax planning in a manner that he saves to invest in nation building. That should not be taken as tax avoidance and should no attract the much feared GAAR.