Dear Prime Minister, Scrap GAAR & Vodafone Law & Redeem Yourself

The author suggests that now that Prime Minister Manmohan Singh is also the Finance Minister, he should live up to the promise he made to Vodafone that the Supreme Court’s verdict will be honoured and scrap the retrospective amendments. This, says the author, will boost his stature as the Country’s leader and also improve sentiment amongst the taxpayer and investor community and lead to an inflow of billions of dollars into the Indian economy

Respected Prime Minister Manmohan Singh ji, welcome back to the Finance Ministry. You may recollect, Sir, that when you first became the Finance Minister in 1991, you were regarded as the “poster boy” for Indian reforms because you ushered in the “revolutionary” reforms that transformed India into the powerhouse that it is today. On that back of that success, you rode the wave of popularity and rightly became the Prime Minister. Sadly, since then, however, much of that sheen has rubbed off and you have been under fire in the recent past for so-called indecisiveness, silence on important policy matters and generally for being “remote controlled”. We know, Sir, that the biggest embarrassment must have been when some political leaders contemptuously suggested that you be “elevated” to the post of President. The less said about that, the better.

Anyway, providence has now delivered to you, Sir, a golden opportunity of a lifetime. In one stroke, you can silence your detractors forever, show that you have the courage and vision to sacrifice short-term gains for long-term benefits and regain the coveted title of “poster boy” for the Indian economy. You can then retire and bask in glory forever.

All that has to be done, Sir, is that both of Pranab Mukherjee’s unpopular measures i.e. that of taxing Vodafone and introducing GAAR have to be reversed. GAAR was too much of a hot potato even for Pranab Mukherjee. He deferred it for a year amidst intense criticism. You, Sir, can now moth-ball it and put in cold storage to give company to the despicable Direct Tax Code (“DTC”).

The problem with GAAR, Sir, is that we are not yet ready or mature for it. You have to see the state of our income-tax department to understand what I am saying. Our system of tax administration is absolutely pathetic. We cannot impose the onerous responsibility of administering GAAR on the bunch of lawless bullies who are presently manning the income-tax department. These people cannot handle a simple task like filing an appeal on time. They don’t give you proper credit for the TDS and pre-paid taxes. They defy the law and raise bogus demands only to meet their revenue targets. They have hounded the software outsourcing industry to such an extent that all the global majors are migrating to the Philippines. Look at the mess that transfer pricing law has become. Almost every second case has to be remanded by the Tribunal because the officers cannot be bothered to apply their mind to even elementary aspects. Even the Dispute Resolution Panel, which is supposedly manned by the top brass of the department, has been castigated so many times by the High Courts and the Tribunal for passing “laconic” orders that any self-respecting person would have retired and taken sanyas in the Himalayas. And these are the people who are going to administer GAAR. How can we ever confer the wide ranging discretionary powers of GAAR on such persons? Sir, even God will find it difficult to save our Country!

Mr. Prime Minister, Sir, I suggest that before blindly aping developed countries which have introduced GAAR, we must understand that these countries have a high level of sophistication in their system coupled with a strong sense of accountability. If an officer makes additions only for the sake of showing high revenue, and these additions don’t stand up in court, the officer gets hauled up and even dismissed for service. Also, their dispute resolution mechanism is very fast. You may recall, Sir, that even complicated cases like the recent Rajaratnam – Rajat Gupta insider-trading case, which is still fresh in our mind, has already been completed and the guilty have been sentenced to Jail. In contrast, Sir, in our Country, even a terrorist caught red handed murdering hundreds of innocent citizens is enjoying our “hospitality” several years after the crime was committed instead of hanging in the gallows. If courts cannot decide such critical matters speedily, who is bothered about an income-tax dispute?

I implore you, Sir, don’t get carried away by the hype that the officers in the department create. First, look at the ground level and solve the ills there before looking up to the sky. These officers find it fashionable to talk about “GAAR” in the high society that they live in rather than to worry about mundane things like giving the common man the small TDS credit that he is entitled to. You, Sir, must prevail upon R. S. Gujral, the Revenue Secretary, and the other “high-flying” officers of the department that they must come down to the level of the common man and address all his problems first within a time-bound period before dreaming of more “revenue-generating” schemes.

While Indian taxpayers are terrified but have no choice but to stay in the Country, foreign investors don’t want to take any chances. If they get locked up in litigation with the income-tax department, it will be several decades before they get a resolution, thanks to the poor state of our judicial system. And, if they do win after a long wait, there is no guarantee that the law will not be retrospectively amended. So, who would want to do business with us, Sir, when there are so many other attractive investment opportunities available throughout the World? Also, let us not forget, Sir, that we are still a poverty-stricken country with a desperate need for foreign capital. Can we afford to behave in this arrogant fashion and drive away the foreign investors? So, Sir, let us first get our basics in shape and worry about GAAR later!

The Vodafone law, Sir, has left a very bad taste in the month. How can you run the race, lose it, and then change the rules and declare yourself the winner? No self-respecting person or country can do it. It has rightly been universally lampooned by everybody and if it is torpedoed, people everywhere will heave a sigh of relief.

If the truth be told, Sir, we already know that deep in your heart you were never in favour of the Vodafone tax measure. Why? Because in a moment of honest introspection, you wrote that famous letter dated 5.2.2010 to Gordon Brown, UK’s then Prime Minister, stating that if the Government lost the case in the Supreme Court, there was “no question of a retrospective amendment” to tax Vodafone. The letter was written in the correct spirit. However, when Vodafone did win in the Supreme Court, Pranab Mukherjee contemptuously crumpled that letter in his fist and threw it into the dustbin. Since then, Sir, we know that you have been seething with humiliation and trembling with suppressed fury. You are the all-powerful Prime Minister but you must have never felt as powerless and impotent as you did then. When Harish Salve thundered in public “Is the word of our Prime Minister not worth a few billions”, we know you must have cringed in embarrassment, hoping the earth would open up and swallow you. What man would like to be known as one who does not honour his word? But Pranabda’s stern personality and steely resolve meant that no one could say a word and the humiliation had to be borne silently.

Now, Sir, with Pranbda out of the way, what is to stop you from junking the Vodafone law? Yes, the Revenue department will do their best to dissuade you but don’t listen to them because they are only obsessed by revenue “targets”. They don’t have the vision to see what damage the law will create. They don’t appreciate how much damage the credibility of the nation has taken. They only see the few billions that they will collect (assuming the courts do not strike down the law as analyzed here) but they don’t see the millions of billions that is being diverted away from India because foreign investors feel that “this is a government that they cannot be trusted to keep its word“.

We know, Sir, that you have been gently assertive about GAAR and Vodafone since you assumed charge. You have told the income-tax department to go slow on Vodafone so that you can carefully consider all the implications. And when the income-tax department rushed out to release the draft GAAR guidelines, you rightly pulled them up by sending a stern statement that “you had still not seen it and it was just a draft“. These are steps in the right direction, Sir, to rein in the over-eager officials and send a clear message on who is Boss.

So, Manmohan Singhji, do it. This is your tryst with destiny. Grab this god-sent opportunity. Show the World the stuff you are made of. Show that you can honour your word. Reverse the Vodafone & GAAR law and be hailed as the saviour of the Indian economy. The entire nation is with you!

Vellalapatti Swaminathan Iyer
Hyderabad (tax2.me)