In a bid to bring consistency to tax laws on foreign investment,Prime Minister Manmohan Singh Monday asked the Parthasarathy Shome committee to study the entire range of tax issues linked to such investment,including cases like the Vodafone tax dispute.
Singh also set up another panel to look into controversies over tax issues impacting the IT sector,satellite TV and pharmaceutical research and development,among others. This panel will be headed by N Rangachary,a former IRDA chairman. He will also look at finalising safe harbour or tax shelter options for foreign investors in these sectors.
The announcements are a clear indication that the government is reconsidering all major tax provisions of budget 2012-13. They have the potential to give a major boost to foreign investment.
A statement issued by the PMO,without referring to the Vodafone case,extended the ambit of the Shome panel to include the taxation of non-resident transfer of assets where the underlying asset is in India.
Singh set up the Shome panel earlier this month to look into issues related to the General Anti-Avoidance Rules (GAAR). The panel was to finalise its report by September 30,but given its expanded mandate,that deadline may be difficult to meet,sources said.
The budget amendment clarifying that an asset registered outside India shall always be deemed to have been situated in India if the share or interest derives,directly or indirectly,its value substantially from assets located in India. The amendment spooked FIIs who feared that the indirect transfer of securities made by them through the PN route would be taxed by the government.