Balancing investment, tax leakage a challenge: GAAR panel head

Finding a balance between investments and revenue leakages is a challenge,, said the head of Prime Minister Manmohan Singh’s panel to study the General Anti-Avoidance Rules.

“Revenue authorities also must have their objective that there should be no leakage from revenue. On the other hand, are we taking care of investment which is a very important goal? Hitting that optimum is a challenge,” said Parthasarthi Shome, who heads the fou-member committee on GAAR.

According to estimates released in May, Indian markets have lost $10 billion worth investments from the overseas funds and ultra-rich foreign individuals over a period of little more than one month on taxation worries.

The committee, he said, would look at how the issue of GAAR has been approached among India’s major trading partners as international capital moves from country to country.

“Investors compare these rules, we will have to look at those in an intrinsic manner,” Shome told NDTVProfit.

(Also read: What is GAAR?)

Shome also pointed out that India is not the only nation to consider such legislation. “Many countries are considering GAAR, they may call it by some other name,” he said

Historically, he said, rulings in the United Kingdom, which has anti-abuse rules, have been referred to. “We need to look at other major investors like European examples and US. Committee member will loo at countries like the US, UK, Germany, South Africa,” Shome said.

Only July 13, the Prime Minister set up the panel to study GAAR, which has raised concerns among global investors, especially foreign institutional investors (FIIs) that they could be unfairly targeted.

GAAR, which was announced in the Union Budget, aims to target tax evaders, partly by stopping Indian companies and investors from routing investments through Mauritius or other tax havens for the sole purpose of avoiding taxes.

FIIs, who mostly invest through P-Notes (participatory notes) in the Indian markets have either pared their exposure to the Indian securities or have deferred their investments ever since India proposed GAAR late in March 2012.

The committee will meet all stakeholders and address investor concerns across the board. The panelw as formed after finance ministry officials met tax consultants in early July for discussions on the tax reform.

N. Rangachary, former chairman of the Insurance Regulatory and Development Authority (IRDA), Sunil Gupta, joint secretary, tax policy and legislation, department of revenue, and NIPFP professor Ajay Shah will be the other members of the committee. .

The committee will have time till end-July to receive comments from stakeholders and the general public, and until August 31 to rework the guidelines based on these recommendations and submit a second draft, the PMO said at the time.