This Article is From Nov 01, 2012

Shome panel submits final report on retrospective tax amendments to Finance Minister: top 10 developments

Shome panel submits final report on retrospective tax amendments to Finance Minister: top 10 developments
The Parthasarathi Shome committee on Wednesday presented its final report on retrospective tax amendments to Finance Minister P. Chidambaram, sources said. The panel has suggested, among other things, that interest and penalty be waived if tax has been applied retrospectively, as reported earlier.

Here are the top 10 developments so far

  1. The panel’s final report is likely to be made public by November 1, and Mr Chidambaram may address a press conference after the report has been made public.

  2. The report has recommended that the tax rules be applied only to future indirect asset transfers. It has also suggested that no interest be charged if the government did decide to apply tax retrospectively.

  3. The report has called for an amendment to the Finance Act, 2012, to incorporate its recommendations.

  4. A meeting on GAAR is likely today as the Finance Minister is leaving for a bilateral meeting in South Korea and then for a G20 meet in Mexico on November 1.

  5. In its draft report released earlier this month, the panel had said the government should not levy any penalty interest in cases where tax demands have been raised following the amendment to tax rules retrospectively in March. (Read: Retrospective tax to apply in rarest of rare cases: Shome panel)

  6. While presenting the draft report, Mr. Shome advised that anti-tax avoidance measures such as GAAR should be used sparingly and not to raise revenue for the government. "We see GAAR as a very, very special instrument for controlling tax avoidance ... We have to protect our revenue but with these kind of anti-avoidance methods we cannot be expanding our revenues."

  7. GAAR was first proposed in the Union Budget in March 2012 by the then Finance Minister Pranab Mukherjee and was meant 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. Mr Mukherjee had deferred the proposal to April 2003 to placate investors.

  8. Prime Minister Manmohan Singh set up the Shome panel to look at the tax measures after global business groups criticised GAAR and investor sentiment in India dampened.

  9. The government’s decision to tax indirect asset transfers retrospectively came only months after the Supreme Court ruled that UK-based mobile phone operator Vodafone was not liable for $2 billion (Rs 10,825 crore) in tax and interest on the 2007 purchase of the Indian assets of Hutchison Whampoa. The recommendation on future indirect transfers may let Vodafone off the hook. The panel’s suggestion that no interest be charged if the government did decide to apply tax retrospectively could potentially lower the UK company’s tax liability.

  10. In its draft report, the panel has recommended the postponement of the rules by three years to 2016-17. In effect, GAAR would apply from the 2017-18 assessment year.