Shome panel recommendations on GAAR positive: KMPG

The Standing Committee on Finance, headed by Parthasarathi Shome, which submitted its report in Parliament on Saturday, recommended that General Anti Avoidance Rules (GAAR) should be delayed by three years.

In an interview to CNBC-TV18, Dinesh Kanabar of KMPG says second draft report has laid down a roadmap for GAAR implementation. "There are a huge number of positive suggestions," he adds. GAAR deferment: Govt going all out to please FIIs Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee. Q: Can you say with confidence that for three years we have got a General Anti Avoidance Rule (GAAR) holiday? A: Yes, I would agree to that. But more importantly, it has laid down a roadmap. There are number of illustrations and more to say that even after GAAR comes into play, after three years, we are going to have continued protection from India-Mauritius tax treaty. Some further reforms are suggested on the capital gain side. So, there are a huge number of positive suggestions. Q: Three years is a long time in India in policy making. GAAR may be a forgotten chapter in a couple of year’s time. This may be not just a three-year window, but it maybe the demise of the whole concept called GAAR. A: I am not too sure of that for a simple reason that everywhere in the world where GAAR has been implemented, there has been a consultative process, there has been a rollout, and there has been a debate. All the stakeholders have come in with their comments. Thereafter taking into account all the view, back and forth, GAAR has been implemented. That was not something which has happened in India. I do agree with you that in India we tend to jumpstart on policies. But this is like moving from one tax regime to another tax regime. You cannot move overnight from one tax regime to another. You got to have a transition phase. This is what the three-year window as well as the grandfathering of the investment seem to do. Q: Let me ask you about the proposal to do away with taxation, short-term tax as well on listed securities and to try and consider offsetting it with a Securities Transactions Tax (STT) hike. How is that going down with global investors? A: There are couples of things. This is just one of the suggestions. The proposition is that in any event of the matter, if you look at listed securities, long-term listed securities traded on the stock exchange are in anyway exempt from tax. Therefore, the only reason why India-Mauritius Tax Treaty becomes important and relevant is in respect of short-term capital gains. The proposition seems to be that what the tax which India collects on account of short-term capital gains is, domestically as well as cross border. That number does not seem to be particularly a large number. The thought of the committee seems to say, why not abolish the short-term capital gains tax and if at all there is a deficit, why not tweak the securities transactions tax a bit. This is one of the suggestions. There are two alternatives there. One alternative is to say keep circulars 789 of India-Mauritius Treaty as it is, don’t tinker around capital gains tax. Nowhere in the world are capital gains on listed securities taxed. India should follow that global policy and if necessary just tweak securities transaction task a bit. _PAGEBREAK_ Q: What about the STT angle of it? Do you think it’s fair to takeaway the capital gains and to sort of compensate for it by hike in securities transaction tax, is that acceptable? A: The only point there is what the quantum of effect is. What I have understood is that the quantum of tax probably is so negligible that the hike, if any, in securities transaction tax is not going to be significant. But we must remember one thing that this is a draft report; this is not a final report. It is open for debate for the next 15 days. First, there are two alternatives, which are recommended. Alternative one is continue with circular 789 and alternative two is abolish short-term capital gains and enhance securities transaction tax. Views have been invited from people. Therefore, one should not take this as a fait accompli. I do not think one need to sit back and say that effective next 15 days or from October 1, STT is going to go up. I do not think that’s a correct response to such a well thought out report.