Retro on retro: Govt sets up panel to fix GAAR flaws

Prime Minister Manmohan Singh has set up a four-member expert committee to examine and outline new guidelines on the controversial General Anti Avoidance Rules (GAAR). HT reports. Pay tax, sleep easy

Prime Minister Manmohan Singh has set up a four-member expert committee to examine and outline new guidelines on the controversial General Anti Avoidance Rules (GAAR).

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To be chaired by ICRIER chief and taxation expert Parthasarathi Shome, the committee will provide greater clarity on controversial tax issues.

This follows a Prime Minister's Office (PMO) clarification, a day after the finance ministry published draft guidelines on July 4, that it will look into the matter. The move was seen by experts as an oblique hint that the final guidelines will have the Prime Minister's stamp of approval.

GAAR seeks to empower taxmen to clamp down on deals and income suspected to have been structured in a way to avoid paying taxes. The panel that includes former insurance regulator N Rangachari, economist Ajay Shah and bureaucrat Sunil Gupta, will submit its norms and implementation roadmap by September 30.

The idea is to make the process more democratic. A senior official said that Singh, after assuming charge of the finance ministry on June 26, told finance secretary RS Gujral that problems on the "tax front, be it GAAR or the way portfolio investments are handled, have muddied waters and investments have frozen."

Other tax changes would come in a similar fashion, the official said. "Instead of removal it will be a more consultative process."

Former finance minister Pranab Mukherjee while presenting the Union Budget for the current fiscal had proposed implementation of GAAR to check tax avoidance. Along with the provision to empower taxmen to scrutinise older corporate transactions such as the Hutch-Vodfaone deal of 2007, GAAR had sparked fears among investors, who said this would choke foreign investment.

It is likely that the retrospective tax amendment in Budget 2012 that targeted the Vodafone deal, would also move in a similar direction. "There are problems on the tax front which need to be addressed," Singh had said on June 27.