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Taxes and Death Are Inevitable, but GAAR Is Avoidable
The report of the committee to review the introduction to the General Anti-Avoidance Rules gives the impression that it fi rst decided on a postponement and then looked for a rationale for the recommended delay. While the report makes a strong case for protecting the interests of foreign investors, it does not clarify how their interests align with those of India. For some reason, the report does not seem to refl ect on the interests of India or even if it does, it assumes that a tax policy which has been drafted in India goes against the interests of India and Indians!
The interim report of the Committee on Implementation of General Anti-Avoidance Rules (GAAR) in India which was submitted recently (Shome Committee Report-I) has received a lot of coverage in the press as a much-needed effort towards setting up a “predictable” tax system in India. The report, put together after “extensive” consultations with “stakeholders”, starts off on some rather interesting premises which constitute the basis for a number of recommendations.
Surprisingly, despite the wide coverage, the response to the interim recommendations of the GAAR committee has been relatively muted as compared to the noise that was made when GAAR was introduced. The reaction of the stock market was cold as the Sensex actually declined by a few points on the day after the report was placed on the website of the finance ministry. This is either because the market had already predicted and factored in the broad recommendations or because the government is yet to take a final decision on the recommendations. The public debate has overall been one of appreciation and that is not surprising because industry, even while demanding state of the art infrastructure, generally believes that taxes are an evil and anything that abates them is welcome. Unfortunately, there has been very little critical analysis of the issue. Of course, it is nobody’s case that a government should impose unreasonable taxes and place draconian discretionary powers in the hands of the tax collector without checks and balances. At the same time, to state that we do not have the requisite capacity to levy the tax and, therefore, should postpone it until we develop the capacity (which is what the committee has recommended) is to throw out the baby and retain the bathwater. In this binary view, India (like most developing countries) should not be levying any taxes for, generally, the capacity of tax administration in India is limited. This note is an attempt to critically analyse the recommendations of the GAAR committee.
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