A panel constituted by India's Finance Ministry to look into the implementation of the controversial General Anti Avoidance Rules (GAAR) policy Monday decided to reduce the number of illustrative examples in the draft guidelines.
The draft guidelines have illustrated 21 examples to describe the applicability and non-applicability of the GAAR provisions and the committee has reviewed them and decided to modify the guidelines.
The GAAR committee met today and discussed the examples (given in the draft guidelines)... some examples will be reduced, some will be combined, a senior Finance Ministry official was quoted as saying by PTI new agency.
The GAAR, which was introduced in the budget in March by former finance minister Pranab Mukherjee, has been much criticized by the industry and investors for its anti-investment friendly provisions. The new tax rules intend to prevent tax evasion by companies by routing their investments through tax havens like Mauritius with which India has signed the double tax avoidance treaty.
The investors had criticized the new policy saying it lacked clarity in several aspects. Following the criticisms, the government postponed its implementation for a year till April 1, 2013 and clarified that tax provisions would not apply retrospectively, besides agreeing to have a threshold limit for invoking the tax provisions.
After the resignation of Mukherjee from Finance Ministry to contest India's presidential election as ruling UPA's candidate, Prime Minister Manmohan Singh, who took over the ministry, attempted to clarify the investors concerns. The Prime Minister said, There are problems on the tax front which need to be addressed.
However, there still exists confusion on the implementation of the GAAR as the Prime Minister's Office and the Finance Ministry came up with contradictory statements regarding the draft guidelines.
The Finance Ministry put the draft guidelines on the Press Information Bureau website Thursday night and invited feedback from the public and stake holders while the PMO Friday said in a statement that the guidelines have not been seen by the Prime Minister and will be finalized with the approval of the Prime Minister.
The confusions on the taxation policy have had an impact over the investors' confidence in the governance and economy affecting the foreign capital flow to India.