Under attack for a Budget that dampened investor sentiment,Finance Minister Pranab Mukherjee watered down some of his most controversial announcements.
Moving the Finance Bill,2012 for consideration and passage in the Lok Sabha today,Mukherjee deferred the implementation of the General Anti-Avoidance Rules (GAAR),but held firm on a retrospective amendment that would hold Vodafone taxable in India for its 2007 acquisition of a controlling stake in Hutch-Essar.
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, the minister said. He also proposed amendments in GAAR including shifting the onus of proof to the revenue department from the taxpayer,appointment of an independent member in the GAAR panel,and permitting investors,domestic and overseas,to seek ruling from the Authority for Advance Ruling (AAR).
The announcement brought some cheer to the stock markets that began to recover from steep losses in early trade. The benchmark Bombay Stock Exchange Sensex,after falling 318 points to touch an intra-day low of 16,644,climbed up sharply to close the day up 81.63 points. The rupee also rebounded and rose by 1.08 per cent against the US dollar to settle at 52.9050/9150 the biggest percentage gain against the dollar in six weeks.
Mukherjee,however,refused to climb down from the tax departments stand to hold telecom major Vodafone-Hutch deal taxable in India. While noting that there has been intense debate on the move to retrospectively clarify tax provisions on capital gains on sale of assets in India through indirect transfers abroad,he merely tried to assuage concerns that it would not override Indias double tax avoidance pacts with 82 countries.
As a token gesture,he promised that cases where assessment orders have been finalised would not be opened and the Central Board of Direct Taxes would also issue a detailed circular. This,in effect,would mean that while Vodafone may have won the Rs 11,000 crore tax case in the Supreme Court but after the passage of the Finance Bill,the government can still start proceedings to recover the tax.
But in a clear move to soothe concerns from private equity investors to jewellers the minister halved the capital gains tax on private equity investors for sale of unlisted securities to 10 per cent. The move would bring tax parity for PEs and foreign institutional investors.
Facing ire from jewellers across the country,he also withdrew a proposal to levy one percent excise duty on all precious metal jewellery He raised the threshold limit for TCS (tax collection at source) on cash purchase of jewellery to Rs 5 lakh from the present Rs 2 lakh. But the threshold limit for cash purchase on bullion has been retained at Rs 2 lakh. Bullion will not include any coin or other article weighing 10 gm or less.
Mukherjee also withdrew the proposal of making certain offences under the customs and central excise laws as cognisable and non-bailable. In response to concerns expressed by members that the proposal regarding grant of bail only after hearing the public prosecutor is too harsh,I propose to omit this provision entirely. In addition,only serious offences under the customs law involving prohibited goods or duty evasion exceeding Rs 50 lakh,shall be cognisable. However,all these offences shall be bailable, he said.