Tags:
Journalism of Courage
India will delay by one year until fiscal 2013/14 the introduction of measures to crack down on tax evasion,Finance Minister Pranab Mukherjee said on Monday,responding to concern among foreign investors that has led to an exodus of funds.
Giving in to demands from various sections,government today rolled back the one per cent excise duty levy on branded or unbranded precious metal jewellery and deferred implementation of tax avoidance rules on foreign investors but left untouched the proposal to tax Vodafone-type deals retrospectively.
Moving the Finance Bill,2012 for consideration in the Lok Sabha,Finance Minister Pranab Mukherjee raised the threshold limit for tax collection at source TCS by sellers on cash purchases of jewellery to Rs 5 lakh from Rs 2 lakh.
However,the threshold limit for TCS on cash purchase of bullion will be retained at Rs 2 lakh. Bullion will not include any coin or other articles weighing 10 gms or less.
Jewellery traders all over the country had gone on a long strike in protest against the one per cent central excise on branded and unbranded jewellery and delegations had met Mukherjee and Congress President Sonia Gandhi demanding its withdrawal.
In a bid to augment long-term low cost funds from abroad for the infrastructure sector,Mukherjee extended the lower rate of withholding tax of 5 per cent for funding specific sectors to foreign borrowings to all businesses.
This lower rate of tax will also be available for funds raised through long term infrastructure bonds in addition to borrowing under a loan agreement.
On General Anti-Avoidance Rules GAAR provisions that have been widely opposed by the foreign institutional investors FIIs,the Minister announced deferring its implementation by one year. They will now apply to income of financial year 2013-14 and subsequent years.
Touching on another controversial proposal,the Minister held firm on amending the Income Tax Act with retrospective effect to tax capital gains on sale of assets in India through indirect transfers abroad,an apparent reference to Vodafone-type deals.
However,he gave an assurance that clarificatory amendments would not override Double Taxation Avoidance Agreement DTAA.
The Minister said the issue has been debated intensely in the country and outside and he would like to confirm that clarificatory amendments do not override the provisions of the Double Taxation Avoidance Agreements DTAAs with 82 countries.
8220;It would impact those cases where the transaction has been routed through low tax or no tax countries with whom India does not have a DTAA8221;,Mukherjee said.
In another message aimed at mollifying business concerns,he said the retrospective amendments now under the consideration of Parliament will not be used to reopen any cases where assessment orders have already been finalised.
8220;I have asked the Central Board of Direct Taxes CBDT to issue a policy circular to clearly state this position after the passage of the Finance Bill,8221; he said.
On the GAAR provisions,Mukherjee also provided some sops when he said it would be amended to remove the onus of proof entirely from the tax payer to the revenue department before any action can be initiated under it.
The government would also induct an independent member in the GAAR approving panel to ensure objectivity and transparency. One member of the panel would now be an officer of the level of joint secretary or above from the Law Ministry.
It would also provide that any tax payer,resident or non-resident,can approach the Authority for Advance Ruling AAR for a ruling as to whether an arrangement to be undertaken is permissible or not under the GAAR provisions.
In order to encourage foreign investment,Mukherjee proposed to give parity to non-resident investors including private equity investors with FIIs by brining down the long term capital gains tax from 20 per cent to 10 per cent.
To deepen the capital market through listing of companies,he proposed to extend the benefit of tax exemption on long term capital gains to the sale of unlisted securities in an initial public offer.
For this purpose,he proposed to provide the levy of securities transaction tax SST at 0.2 per cent on such sale of unlisted securities.
The Minister announced withdrawal of one per cent levy of Tax Deduction at Source TDS on transfer of immovable property following representations that this would impose an additional compliance burden.
Another important roll back which the Finance Minister effected was with regard to provision regarding grant of bail for certain offences in the customs and central excise laws.
He said members have expressed that the proposal regarding bail only after hearing the public prosecutor is too harsh and the Minister proposed to omit the provision entirely.
In addition,only serious offences under the customs law involving prohibited goods or duty evasion exceeding Rs 50 lakh shall be cognisable. All other offences shall be bailable.
Referring to introduction of a negative list for service tax,he said the initiative has been widely welcomed although some states have expressed concerns.
8220;I have decided to address their concerns by making changes in the definition of 8216;service8217; which will exclude the activities specified in the Constitution as 8216;deemed sale of goods8217;. The definition of 8216;works contract8217; has also been enlarged to include movable properties,8221; he said.
Govt defers implementation of GAAR by one year
Giving relief to investors,Finance Minister Pranab Mukherjee today deferred the implementation of much-debated General Anti-Avoidance Rules GAAR to check tax evasion by one year.
8220;To provide more time to both taxpayers and the tax administration to address all related issues,I propose to defer the applicability of the GAAR provisions by one year.
The GAAR provisions will now apply to income of Financial Year 2013-14 and subsequent years,8221; Mukherjee said in the Lok Sabha.
Besides,he said,8221;to provide greater clarity and certainty in the matters relating to GAAR,a Committee has been constituted under the Chairmanship of the Director General of Income Tax International Taxation to give recommendations for formulating the rules and guidelines for implementation of the GAAR provisions and to suggest safeguards so that these provisions are not applied indiscriminately.8221;
The Committee has already held several rounds of discussion with various stakeholders including the Foreign Institutional Investors. The Committee will submit its recommendations by May 31,2012,he said while moving the Finance Bill,2012 for consideration and passage of the Parliament.
Suggesting amendments the GAAR,the Finance Minister said remove the onus of proof entirely from the taxpayer to the Revenue Department before any action can be initiated under GAAR.
8220;After examining the recommendations of the Standing Committee on GAAR provisions in the DTC Bill 2010,I propose to amend the GAAR,8221; he said.
Addressing another concerns of foreign investors,the Finance Minister introduce an independent member in the GAAR approving panel to ensure objectivity and transparency.
COMMENTARY
ROHIT ARORA,FIXED INCOME STRATEGIST,BARCLAYS CAPITAL,SINGAPORE The issue of taxing on hindsight has just been postponed. It has not taken away the uncertainty among foreign investors on policy issues.
The postponement of GAAR General Anti-Avoidance Rules may have a temporary impact on the currency and stocks,but in the medium term we expect the currency to remain under pressure on weak fundamentals. Portfolio inflows will be decided by how the euro does,but policy issues and weak fundamentals will have a negative impact on portfolio flows and India should see lesser amount of inflows than other Asian countries.
RADHIKA RAO,ECONOMIST,FORECAST PTE,SINGAPORE
These comments should provide short-term relief to the domestic markets,however,the decision to put the onus on tax authorities to prove liabilities could infuse some extent of ambiguity and subjectivity into the proposals.
For now,the markets will cheer clarity on the provisions and deferment of the implementation date.
SANDIP SABHARWAL,CEO,PORTFOLIO MANAGEMENT,PRABHUDAS LILLADHER,MUMBAI GAAR deferral is extremely good for markets and economy as a lot of fund flows had come to a stand still because of this. At a time when our current account deficit is so high we can8217;t scare away foreign capital. Now that GAAR is deferred,India will stop underperforming global peers at least.
R.K. GUPTA,MANAGING DIRECTOR,TAURUS MUTUAL FUND,NEW DELHI
There will be a knee-jerk reaction to the much-awaited announcement. Immediate money is unlikely to come in Indian markets because of Europe issue,which will continue for some more time.
Definitely sentiment has improved,one has to wait and watch till the finance bill is cleared in the parliament after two days.
J. MOSES HARDING,HEAD OF ASSET LIABILITY COMMITTEE,INDUSIND BANK,MUMBAI
This is indeed good news for stocks and rupee. It is important for the government to keep off-shore investor appetite intact till structural CAD current account deficit issues are resolved.
Given the criticality of off-shore inflows into Indian capital markets to maintain rupee stability,it is important for the government to avoid negative vibes to cause reverse flow.
JONATHAN CAVENAGH,FX STRATEGIST,WESTPAC,SINGAPORE
It8217;s obviously a positive in the near term. We have seen portfolio outflows picking up in recent weeks,which has obviously added to downside pressure on INR.
Does it change the USD/INR trend? No would be my view. Twin deficits,elevated oil prices and cooling growth momentum against a back drop of high inflation continue to create a poisonous environment for the currency. Oil prices moving lower is a positive but this needs to be sustained for a longer period before it turns into a positive INR development.
KK MITAL,HEAD OF PORTFOLIO MANAGEMENT,GLOBE CAPITAL,NEW DELHI
For FIIs foreign institutional investors,their near-term concern over GAAR is resolved now. FII inflows will definitely improve and there will be restoration of confidence.
Right now the markets are attractive,it8217;s an opportunity for FII flows to peak in India. Hopefully in the future whenever GAAR would be applicable it will be with more transparency.
MARKET REACTION
8211; The Indian rupee was trading at 52.95 to the dollar,strengthening from 53.20 before the announcement.
8211; The benchmark stock index turned positive to trade 0.6 percent higher,cutting losses of nearly 1 percent.
