PMs No Confidence Vote On CBDT?
Prime Minister Manmohan Singh has done well to appoint tax expert Dr Parthasarathi Shome as head of panel to firm up guidelines for the general anti avoidance rules (Gaar), meant to curb sharp tax practices. The move would calm foreign institutional investors (FII) who have been jittery about the proposal despite assurances from finance ministry mandarins that safeguards will be in place to prevent possible misuse by taxmen.
A carefully worded statement from the prime minister’s office (PMO) says it is necessary to have widespread consultations and an informed debate on how Gaar would work. “The expert committee will bring in transparency and a high degree of technical expertise to the consultation process”.
So, the CBDT panel tasked with the same job has been disbanded. The panel, chaired by the Director General International Taxation, had six other members including two senior officials from the foreign tax division and one from tax policy. None of them have made it to Shome’s panel. Sunil Gupta, joint secretary tax policy, nominated on the new panel, was not a member of the CBDT panel.
It signals a vote of no confidence on the CBDT panel. There are two reasons for this. One, the panel did not hold wide-ranging consultations with stakeholders before finalizing the first set of rules. Two, it also lacked clarity on many issues relating to Gaar. That is unacceptable. Ambiguous rules would be a nightmare for investors.
Sample a statement in the draft guidelines : Foreign institutional investors have expressed certain concerns regarding Gaar provisions. The committee met representatives of Asia Securities Industry & Finance Markets Association and Capital Markets Tax Committee of Asia. After discussions, representatives of these bodies gave the following suggestions to resolve their apprehensions. One, exempt capital market transactions entirely from Gaar provisions. Two, a flat tax on FII’s gains without any distinction between various transactions could be considered. Three, tax authorities could attempt to clarify the details of each provision in the Gaar. For this, they gave comments on how the relevant provision may be clarified. The committee considered suggestions of the representatives. Option one and two above are not viable options as it is not permitted under the provisions of the Income Tax Act. However, option three could be considered. For this purpose, safe harbour could be provided to FII’s subject to the payment of taxes as per domestic law.
Rightly, Shome’s panel has been tasked with doing a course-correction after consulting stakeholders. It will put out a second draft by the end of September. A fresh perspective should surely bring in clarity on the working of Gaar. And it will be written in simple English.
As former advisor to finance minister P Chidambaram, Shome was the architect of two controversial taxes -- the Banking Cash Transaction and Fringe Benefit Tax – that were scrapped after industry raised a hue and cry. But he ensured rules were not ambiguous when the tax was in force.
Shome’s appointment is a signal that his former boss could be back in North Block to hold the finance portfolio. The PM though is keeping his cards close to his chest!
Source:ET
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