Dear Pranabda, Save India’s Honour & Withdraw GAAR & Vodafone Law
Noted economist Bibek Debroy argues that GAAR and the Vodafone retrospective amendments send a “perverse signal” and are a “terrible” idea. He says the proposals create great uncertainty, subjectivity and non-transparency which does not auger well for India as an investment destination. He urges the Finance Minister to admit his mistake and do a honourable strategic retreat before it is too late
Close on the heels of eminent senior advocate Harish Salve‘s passionate attack on the Vodafone retrospective amendments and General Anti-Avoidance Rules (GAAR), noted economist Bibek Debroy has also torn into the Government’s proposal to nullify the Vodafone verdict and implement GAAR.
In a short but succinct article, Bibek Debroy gives persuasive reasons for his suggestion. With regard to GAAR, Debroy points out that the time is not opportune for GAAR. There is already a severe dent in investor confidence owing to the state of the economy and the adverse balance of payments and GAAR will create great uncertainty, subjectivity and non-transparency.
.. by ramming GAAR through the Finance Bill, 2012, the Government has given it the impression of being an “anti-Vodafone” and “revenue-generation” measure, designed to hit out at cross-border transactions. The panic and anxiety that has gripped FIIs and foreign investors, could have been avoided if it had been brought in through the DTA, as originally intended
Debroy argues that if GAAR was proposed to be implemented only through the Direct Tax Code (DTC) as originally intended, there was no justification for it being “slunk in” through the Finance Bill 2012. He points out that GAAR would have an air of legitimacy about it if it was brought in as part of a scheme to revamp the entire income-tax law and if it was passed by Parliament after a thorough discussion.
He opines that if GAAR had been brought in through the DTC, there would have been no controversy of the type seen today because tax-payers would have felt confident that there were adequate safeguards and dispute resolution channels. However, by ramming it through the Finance Bill, 2012, the Government has given it the impression of being an “anti-Vodafone” and “revenue-generation” measure, designed to hit out at cross-border transactions. The panic and anxiety that has gripped FIIs and foreign investors, could have been avoided, says Debroy.
Debroy also criticizes the soothing sounds made by the top brass of the Finance Ministry that they will “talk” to the foreign investors and “reassure” them. He says that instead of such half-measures, the Government must focus of ensuring that the rules and regulations are clear and that there is no ambiguity that requires “talking” for “reassurance”.
GAAR should not just be deferred; it should be shelved till it is properly debated and integrated into DTC, says Debroy firmly.
The Vodafone amendments send a “perverse signal” .. the FM and his ministry should acknowledge the mistake and scrap GAAR, until it is done through DTC .. There are times when a government should say “mea culpa” and roll back provisions in a Finance Bill. There is honour, rather than dishonour, in strategic retreat”
On Vodafone, Bibek Debroy tears into the Government calling the proposed retrospective amendments a “perverse signal” conveyed to the international community of disrespect to international tax treaties. Debroy reminds the Government that strategic tax planning and tax avoidance are undertaken by businessmen on basis of tax laws prevalent at a certain point and says that to supercede these laws by retrospective amendments is a terrible idea. He expresses surprise that despite the overwhelming opposition to the proposals, the government and the Finance Minister haven’t toned down their “strident tones” on the issue.
Debroy urges the government to think beyond its immediate problems of spiraling deficit, inefficient public expenditure, soaring subsidies and the paralysis in decision making. GAAR and the Vodafone retrospective amendments will not rectifiy the situation but will only exacerbate the problems, he warns.
Debroy pleads with the Finance Ministry to “acknowledge its mistake” and scrap GAAR and the Vodafone retrospective amendments. He adds that there are times when a government should say “mea culpa” and roll back provisions in a Finance Bill and that there is honour, rather than dishonour, in strategic retreat.