Lightening the Burden of GAAR

Many stakeholders canvassed against the rigour of the proposed General Anti-Avoidance Rules (GAAR), which were to be implemented from next year (2013-14). It led the prime minister to constitute an ­expert committee headed by Parthasarathi Shome on 17 July 2012 to finalise the guidelines and a road map for implementation of GAAR taking into account the reactions of stakeholders. The committee’s report was submitted on 1 September 2012. This article revisits the issue and examines if the modifications to GAAR suggested by the Shome Committee report are in excess of what is ­requi­red. In other words, it considers whether the committee capitulated to the din created by stakeholders, who were spokesperson of industries that take advantage of loopholes in the income tax law and resort to what they call tax planning.

The committee’s report begins by saying that the investment climate has been adversely affected by the combined effect of GAAR and retrospective taxation proposed in the budget for 2012-13. ­Foreign investors perceive the tax administration as having an “unpredictable approach”, it says. A comparison is made with the proposed GAAR in the UK, a country that has been a model for Indian tax laws. In the UK, an independent body of experts mooted the proposal after approximately four years of consultation, while in India the GAAR guidelines were formulated by a departmental committee. The approach in the introduction indicates that the report will tone down the impact of the proposed GAAR.