FM's Hint on Delayed GAAR Comforts Foreign Investors

Bangalore: Finance Minister P Chidambaram has come with a small relief for the foreign investors, who were earlier discouraged by Pranab Mukherjee’s controversial tax proposals. Chidambaram made it clear that India’s tax regime would have a favourable approach.

The finance minister would consider the Shome committee’s recommendations to delay the General Anti-Avoidance Rule (GAAR), reports the Firstpost.com.

The U.S. media are in full support to Chidambaram’s decision to defer GAAR to create an investment-friendly climate. The Wall Street Journal reported, “In a rare bit of good news for foreign investors eyeing the Indian market, over the weekend an expert panel recommended that plans to crack down on most transactions and treaties that so far enjoyed some tax exemption be deferred for three years. Explaining that tax officers need intensive training before these rules can be implemented, the draft report also noted that they should be seen more as an instrument to deter tax avoidance, rather than to generate revenues.”

Earlier this year, the former finance minister Pranab Mukherjee had outlined his plan in the March 16 budget to tax international mergers that exchange Indian assets. This empowered the government to demand up to 40, 000 crore in taxes from at least 20 companies.

Vodafone: the Obvious Target

The evident victim of this proposal was the British multi-national telecommunications company, Vodafone, which could end up paying more than $2.2 billion in taxes on its acquisition of the Indian assets of Hutchison Telecom in 2007 that helped them enter the Indian market.

Chidambaram contextually said he would consider the suggestions of the Shome Committee set up to review both the “Voda” tax and the GAAR. He assured that the income tax officials would consider the committee’s recommendations along with previous court decisions before deciding whether to issue a tax demand to Vodafone. “They (tax officials) are not going to act rashly. These are not small amounts on which you can take a rash decision,” he said.