Four reasons why GAAR is positive for investors

Ajay Bodke, head - investment strategy & advisory, Prabhudas Lilladher told CNBC-TV 18 that announcement made on the general anti-avoidance rules (GAAR) will be taken very positively by domestic and foreign investors.

“The deferment of GAAR by one year will provide both administration officials as well as investors a breather to understand all the regulations over a one year period, he said. Meanwhile, he expects hike in fuel prices and fertiliser prices to come through after the current session of the Parliament ends. Below is the edited transcript of Bodke’s interview with CNBC-TV18. Also watch the accompanying video. Q: A word on the GAAR (The General Anti-Avoidance Rules) clarification and what you hear in terms of whether its going to have a salutary impact on flows or not? A: There was a clear feeling of consternation among foreign investors due to the proposed applicability of GAAR provisions, which had created a feeling of unpredictability and a concern on the Indian tax system. But, the government has responded very positively yesterday when they announced the amendments to the GAAR provisions and I would like to point out the 4 main points. Essentially, the deferment of GAAR by one year will clearly provide both administration officials as well as investors a breather to understand all the regulations over a one year period. Shifting the onus on tax authorities to prove evasion there was a concern that the tax authorities could launch a witch hunt. So, this takes care of that. The third point is no case to be opened up for companies whose tax assessment is over. Now here again there was a fear that you could go back all the way down to 1962 but now the FM has said that circular will be spelt out where only - go back to last 6-7 years. The fourth and important measure is that the proposed retrospective amendment of the IT laws will not override the DTA provisions. So, the concern is on the Mauritius tax route also get addressed. All the four measures are real booster and market needed this because we have been battered by negative news both globally as well as on the domestic front for April. This also more importantly keeps the hope alive for investors that the government is responsive. May be after the end of the current session some measure on increasing fuel prices and fertilizer prices could come through. The opposition has clearly said if the government was to convince its allies then big bang reforms on banking, pension and insurance will go through. So, I would personally feel that yesterday’s seminal announcement will be taken very positively by both local as well as foreign investors.