Undoing the damage

The Shome committee report makes it clear that what is needed is predictability in Indian tax laws. On the subject of non-resident taxation,it has made a clear distinction between tax avoidance and evasion,recommended postponement of the GAAR by three years and asked for abolition of the short-term capital gains tax from the securities market to make it immaterial whether an investor uses a tax haven or registers directly in the Indian market. The report is clear that in modern tax regimes,authorities cannot presume wrongdoing by the assessees and begin a sweeping probe into their affairs. They have to first build a strong case. In postponing GAAR,a powerful investigation tool for tax sleuths,the committee has reiterated its belief that taxmen do not yet have the requisite training to work it wisely. For instance,tax officials in India rarely work more than three to four years in tax-related work before they get transferred.

The committees recommendations herald significant changes that will create an impact only when the government implements them. Also,in the short term,it is unlikely that the flow of investments into the Indian economy will show a rapid upswing. The impact of the tax-related apprehensions unleashed by this years budget will take time to subside,and globally,money is scared to move to any destination where tax laws change fast. But the report provides a good base to announce a schedule for the implementation of the delayed Direct Tax Code,if not for the Goods and Services Tax as well.