Experts decry GAAR; call for more general tax law

GAAR has assumed a new significance in the backdrop of the Prime Minister taking over the reins at the finance ministry, reviewing the various ministries related to the economy and assuring industry that problems plaguing the economy would be addressed.

Below is an edited transcript of the discussion on CNBC-TV18. Also watch the accompanying video.

Q: What kind of clarifications can be really expected as far as the GAAR guidelines are concerned?

Kanabar: The GAAR provisions as on the statute envisage invocation if the substance of a transaction is not borne out in the transaction or if there is an abuse of law.

Now many of these terms are very subjective. Whenever there is anything subjective, there is apprehension on how the tax office will actually implement it.

Immediately after the Finance Act was put out, the finance minister had said that there would be an internal committee including the revenue secretary, which will hear out various stakeholders.

There have been a number of meetings and the government is likely to come out with a detailed circular providing for instances where GAAR can be invoked.

In certain instances where GAAR can be invoked, it actually becomes a specific anti-avoidance law. Industry and tax professionals have been advocating the government to come out with a general anti-avoidance law rather than a specific anti-avoidance.

Q: If these clarifications are made will industry and foreign investors be more appreciative of what would then become specific anti-avoidance rules?

Butani: Firstly, foreign investors are not against GAAR. Every foreign investor faces GAAR regulations in most emerging economies. The challenge is the timing and I think this is just the most inappropriate time for India to think of GAAR.

Secondly, the government has a tendency to implement an anti-avoidance law in full swing and then realise that it is just dealing with controversies. The third aspect is the concern about the increasing power being delegated to the tax authorities.

Lastly, the committee overlooking invocation of GAAR does not have the kind of independence that inherent in similar committees across the globe.