Feb 11, 2013 09:11 PM IST | Source: CNBC-TV18

Is GAAR still a concern for investors? Experts debate

Focusing on the troubled legacy for taxation from the previous budget, CNBC-TV18's special show Taxing Times, brings on the discussion board key issues like general anti-avoidance rule (GAAR) with a panel of eminent experts.

Focusing on the troubled legacy for taxation from the previous budget, CNBC-TV18's special show Taxing Times, brings on the discussion board key issues like general anti-avoidance rule (GAAR) and the section 9 retrospective amendment. A panel of eminent experts including R Prasad, Former Chairman, CBDT & Member at CCI; Sunil Jain, Partner at Law Firm, J Sagar Associates; Ketan Dalal, Joint Leader, Tax & Regulatory Services of PwC and Sudhir Kapadia, Partner & National Tax Leader at Ernst & Young join in to debate the various topics that are likely to be considered during the upcoming budget session.

Prasad believes GAAR brought about a sense of uncertainty and it was unsettling the whole regime. As a result, investors were concerned and according to him, the issue is going to persist ahead.

Jain on the other hand, feels the finance minister's comments have definitely brought about some clarity to the controversial GAAR and it is likely to improve the sentiment.
 
Here is the edited transcript of the interview on CNBC-TV18.

Q: The Finance Minister recently told investors in Hong Kong that the ghost of GAAR had been buried and the new timeline has been announced, it is likely to start from the assessment year 2016. My question is, has GAAR been completely buried, will it ever come into effect in the future, essentially because any political system would probably find it very difficult to annoy investors?

Prasad: People did not like GAAR for a simple reason. There was a settled regime and GAAR is unsettling the whole regime. Then it introduced a system of uncertainty. It is a trade-off between revenues and investments. As somebody wants to invest, he wants a settled regime, where he knows his stand.

GAAR introduced that uncertainty in the old tax regime. So, that is why GAAR has been criticized but GAAR will never die. It will always remain. Many countries already have this law. We will also have it and the issue will come up again.

Q: I noticed that you had recently written a long article about GAAR, the same point that Mr Prasad made, GAAR will never die, do you believe that?

Jain: Yes, a number of good things have appeared in the recent statements from the Finance Minister and we now know that the GAAR will be invoked in transactions where the main purpose of the transaction is resulting in tax benefit. There are also a number of other related changes like the approving panel which will be a little more democratic than we had at present. There are also other changes which gives us a lot of assurance that GAAR will definitely improve and will come to effect in a much more diluted form than its present form. But, as we move forward, we will clearly need to discuss a number of points on which more clarity is required.

Q: The basic question is that there has been a deferral. Investors have taken a good notice of that but, my question at this stage from a very general point of view is will GAAR ever come into effect in India considering all the political pressures and other things that we are likely to see on this?

Dalal: I think there are two parts to the issue. There is what I would call a judicial GAAR and a legislative GAAR. So far as the legislative GAAR is concerned, as the Finance Minister said, I think what is likely to emerge in the Budget is that the legislative GAAR will come into effect in the year-ending March 31, 2016. In a sense, it will be there in the finance act and therefore, my sense is that it will come into effect. That is one part.

But, in any case we do have a judicial GAAR. If you look at the Vodafone case, to my mind, it was nothing but an invocation of a judicial GAAR. So it is already there.

So far as the point that Sunil Jain made, there is a concern and I agree with all of them. I just want to make one more point. I think one of the best things that has been done is that the invocation panel concept has been accepted and the Shome Committee recommendation have been accepted, though in a slightly diluted form and of course one has to see how it operates.

But, the key is that the invocation has to be very carefully done as opposed to being done in a sweeping manner. I hope that answers your question broadly.

Q: Give us a quick comment on the same question, is GAAR going to come into effect in India because there are several people who say that it might get postponed further?

Kapadia: I also broadly agree that indications are clear. It is deferred and not done away with. In the year when the finance minister said he will introduce it, he will find the most likely amendment in the finance bill.

I think the larger point which I would like to make is that we are in a scenario where today we have many other international tax provisions brought into the statute. You have advance pricing agreements (APAs), you will hopefully have safe harbours and of course have transfer pricing. I think directionally, India is going to integrate more and more with international trends and I do not see why or how India will do away with introducing GAAR.

I am pretty sure that it will come, hopefully it will come in a manner which the Shome committee has rightly recommended. The finance minister has pre-empted some of it and has kind of agreed with those recommendations. In some cases he has been very silent and will talk about it. But, he has not given his mind away and of course the larger question is about who will be the finance minister in the year when GAAR is supposed to be introduced. But, that is a different topic.

Watch the accompanying videos for full show.

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