8:51 AM
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Parliamentary standing committee on finance chairman and senior BJP leader Yashwant Sinha has slammed the government for bringing in General Anti-Avoidance Rule (GAAR) in the Budget, saying that it empowers income tax department to “harass” tax payers. Instead, he has suggested, government should have waited and brought the provision with the direct taxes code (DTC) after careful examination.“The standing committee has given its recommendation for GAAR with safeguards so that revenue department did not have power to harass tax payers. However, the finance ministry has gone ahead with its own version of GAAR,” Sinha told FE.
The GAAR provisions were part of the DTC Bill but it was brought by finance minister Pranab Mukherjee in the Budget 2012-13. The finance minister had said that the government wanted to introduce GAAR in order to “counter aggressive tax avoidance schemes, while ensuring that it is to be used only in appropriate cases, by enabling a review by a GAAR panel”.
However, the fear of GAAR spooked the stock markets on concerns that all short-term capital gains made by FII and P-Note investments would be taxed. Provisions of GAAR will be applicable from April 1 this year and not with retrospective effect.Under GAAR, any arrangement made between the entities to deliberately avoid tax can be invalidated and would be brought under tax net. The onus would be on the taxpayers to prove that the arrangement has not been made to avoid tax. This is in contrast with the report of the standing committee, which has put responsibility on tax authorities to prove that the deal is subject to tax under GAAR.
The report of the committee was submitted just before the Budget, which made it difficult for the government to examine the Bill.
However, Sinha said the finance ministry was generally aware of the recommendation that the committee was going to make as they were in touch with the ministry. “GAAR was most controversial chapter of the DTC. The finance minister should have brought it before Parliament for discussion in the Monsoon Session after examining it,” he said.
Last week, finance ministry officials met foreign institutional investors to allay their fears on GAAR. Finance secretary RS Gujral had said the government would protect genuine investors and so “permissible arrangements” would not be subject to tax.