Retrospective tax policy to be reviewed: P Chidambaram
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Finance minister P Chidambaram has sent out signals that could bring cheer to investors and the stock market. Chidambaram has ordered a review of all retrospective tax policy.
“I have directed a review of the retrospective elements in the tax policy,” he said. “We shall be looking at cases pending as well as new cases from the retrospective tax point,” he added.
He said that it was important to have clarity on tax policies and that non-adversarial tax policies should help.
Also Read: Why P Chidambaram, RBI governor D Subbarao meeting matters
The announcement of retrospective imposition of general anti-avoidance rules or GAAR by the Indian government put off investors. India has witnessed a consistent decline in the foreign investment since the announcement of the budget in March 2012. However, the government has set up an expert panel to review GAAR implementation postponed till April 1, 2013. The finance minister’s announcement helped BSE Sensex gain over 200 points on Monday.
Chidambaram said that current interest rates were very high and he would work with Reserve Bank of India to control inflation. He said that the government would announce a fiscal consolidation plan soon.
The high inflation is due to the government’s inability to control the fiscal deficit. When a government spends more than it earns in tax revenue, it has to borrow from the central bank. RBI prints money and that stokes inflation. It is important for the government to control the fiscal deficit so that RBI can cut lending rates.
“The current interest rates are high. There has been pressure on inflation and food inflation is high. We will take steps to remove constraints on supply side,” he said.
On fiscal consolidation, the finance minister said that pains had to be shared by both expenditure and revenue.
Reserve Bank of India governor D Subbarao met finance minister P Chidambaram on Monday. The relationship between the finance minister and the governor is critical in the context of the situation in the economy.
During the financial year 2011-12, India’s net tax receipts were Rs 6,42,000 crore and the total expenditure was Rs 13,19,000 crore. Budget estimates for 2012-13 put net tax receipts at Rs 7,71,071 crore and the total expenditure at Rs 14,90,925 crore.