GAAR framework aimed at boosting investor confidence

The General Anti-Avoidance Rules (GAAR) framework has been prepared keeping in mind the need to  instill confidence among investors, tax expert Parthasarthi Shome said on Friday.

"We have worked like a technical tax committee and saw the GAAR framework in a comparative situation with rest of the world as well as in context that we need investments in India at this stage to get out of (slowdown)," said Shome who is a professor at the Delhi-based think tank Indian Council for Research on International Economic Relations (ICRIER).

Shome, who as the head of the panel on GAAR set up by the Prime Minister, was was speaking at an event organised by industry body Assocham. The government is examining recommendations of the Shome committee which suggested postponement of GAAR by three years and non-application of tax laws with retrospective effect on indirect transfers of assets.

Amendments to GAAR, the controversial law against tax avoidance through foreign investments, have been finalised, finance minister P Chidambaram had said recently. The Shome panel, among other things, has also suggested abolition of tax on gains arising from transfer of securities, which is subject to securities transaction tax (STT).

It had also suggested that GAAR should not be invoked in intra-group transactions. It further said that a monetary threshold of Rs 3 crore of tax benefit should be fixed while applying the provision. Regarding foreign institutional investors (FIIs), the report suggested that if they choose not to take any benefit under India's DTAAs, then the provisions should not be applied.

At the function, Shome also said that India should strengthen the large tax payers unit (LTUs) and focus on data mining and analysis of the tax administration. "There is need to strengthen LTUs and focus on data mining and analysis of tax administration," he said. LTUs are self-contained tax administration offices under the department of revenue acting as a single window clearance point for all matters relating to central excise, income tax/corporate tax and service tax.

Entities would be able to file their excise return, direct taxes returns and service tax return at such LTUs and for all practical purposes will be assessed to all these taxes at these LTUs. Chidambaram had proposed setting up of LTUs in Budget 2005-06 to reduce the tax compliance costs and delays.

Currently, LTUs function in Bangalore, Chennai, Mumbai and Delhi, but the scheme has not been successful as not many taxpayers volunteer for fear of closer scrutiny. The scheme entailed opening up of a single window facilitation centre for all large entities paying excise duty, corporate tax/income tax and service tax. Shome  also stressed need of holding continuous customer-based meetings at different levels on the sector.