The government will face significant challenges on revenue mobilisation while formulating the budget for 2013. Not only does it have to support social schemes, there is significant non-plan expenditure as well.
Under such circumstances, the expectation is that the government would like to increase revenue collection through additional taxes or removal of these benefits.
In recent times, revenue authorities have focussed on cross-border transactions with the belief that most of them were structured to avoid tax. Post the Vodadone ruling by the Supreme Court, the approach seems to nullify any intermediary structures or transactions, which may have significant tax flow.
Finance minister P chidambaram has clarified that the government has accepted the Shome Committee report in full except with minor modifications.
In such a scenario, the relevance of General Anti-Avoidance Rule (GAAR) in India post budget is a matter of debate.
The methodology in administration of the legislation had been considered as a cause of concern, mainly due to often incorrect and inappropriate interpretations.
While on one hand the government wants to send a positive message to industry and global investors, on the other hand, the approach of revenue authorities often leads to huge litigation, resulting in a cause of concern for the taxpayer.
The tax administration should focus on the administration of tax laws by following fair interpretation rather than an approach leading to quantum adjustments, which may not stand the test of scrutiny and deviate from global practices.
Another issue is tax interpretation vs promotion of trade and commerce.
It has been articulated by the Supreme Court in the Vodafone and Azadi Bancholan cases that tax planning is permitted.
The Supreme Court in the Azadi case and Vodafone case concluded the treaty which the government signs is to be respected and any interpretation beyond the treaty should be avoided.
Hence, it is essential any legislation should serve both the purposes i.e collection of tax and promotion of trade and commerce.
As far as anti-avoidance regulations go, the Centre should create a permanent task force comprising members of revenue department and members of the industry which would discuss issues concerning anti-avoidance rules.
Such recommendations should have binding force. This would create stability and restore confidence in India.
(The writer is partner, Deloitte Haskins & Sells. The views expressed are personal.)