Keeping their word, the government has steadily worked towards simplification of tax laws and steered clear of any kind of 'tax terrorism'.
Keeping their word, the government has steadily worked towards simplification of tax laws and steered clear of any kind of 'tax terrorism'.
A slew of recent actions and reforms - goods and services tax (GST), conclusion of advance pricing agreements, dispute resolution scheme, steps to implement OECD base erosion and profit shifting recommendations and countering black money menace - prove that the government has radically shifted focus towards widening the tax base, reducing disputes and adapting to the rapidly evolving business models.
The next big question is whether India will proceed to implement General Anti-Avoidance Rules (Gaar) from April 2017?
If actions are to be observed, the answer could be affirmative. In the recent past, the government has renegotiated investor-friendly tax treaties (Mauritius, Singapore and Cyprus) which all seem to reflect a push towards the presence of anti-abuse provisions. Further, CBDT's report on major achievements in 2016-17 issued last fortnight also reaffirms the commitment towards an April 2017 Gaar rollout.
Gaar aims to serve as a preventive measure against tax avoidance arrangements and has the effect of nullifying any arrangement made by a taxpayer with the primary aim of obtaining a tax benefit. Though there is a monetary threshold of Rs 3 crore tax benefit to invoke Gaar, the low threshold would ensure that a number of transactions could come under the ambit of its scrutiny.
Gaar, in various forms, has already been implemented globally in several countries and was first proposed in India through the draft Direct Taxes Code in 2009. While the Direct Taxes Code was later dropped, Finance Act, 2012 proposed to introduce Gaar from April 1, 2012. However, this invited criticism from various groups and foreign investors, especially on the ambiguous language and wide powers to the tax authorities, thereby forcing the government to defer its applicability by a year. The wide disapproval and negative publicity also resulted in the formation of Shome Committee to study and recommend changes in the draft rules and the committee submitted its report in October 2012.
A major recommendation of the Shome Committee was to introduce Gaar at the time of stability and after the readiness of the tax department that led to the further postponement of Gaar and in Finance Act 2015, it was proposed to be introduced prospectively from April 1, 2017.
But it is ironical that when Gaar was deferred keeping in view the economic stability as one of the reasons, the government may choose to implement Gaar immediately after its surprise demonetization move, the full results of which are still awaited. A major portion of the economy which is cash driven and unorganised is currently on tenterhooks with the crinkles of demonetization and the investor sentiment is anything but resilient. The government needs to give adrenaline shots to the ailing sectors of the economy with a large amount of foreign investments which in itself may not be forthcoming due to global political developments.
Given the above, one would need to wait for the Budget day to see what the government chooses to do in its wisdom.
The writer is director, tax & regulatory services, EY India
(Kavita Sethi, senior tax professional, EY also contributed to the article)
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