India's equity markets gained and the rupee hit over 1-week high boosted by the Shome panel proposal to defer GAAR proposals until 2016. Foreign investors, already wary about investing in India where economic growth has slowed sharply, had earlier said they are worried the laws might be misused. Analysts said the recommendations would remove uncertainty, which will benefit equities.
Here are the top 10 facts on the Shome panel recommendations.
1) The Shome Committee, set up by Prime Minister Manmohan Singh to address the concerns of foreign investors on General Anti Avoidance Rules (GAAR), has recommended the postponement of the controversial tax provision by three years to 2016-17. In effect, GAAR would apply from assessment year 2017-18. GAAR was aimed at firms and investors routing money through tax havens.
2) The committee, headed by Parthasarathi Shome, has recommended that GAAR be applicable only if the monetary threshold of tax benefit is Rs 3 crore and more. The draft report has sought comments from the stake holders by September 15.
3) The Shome Committee has also recommended abolition of capital gains tax on sale of listed securities by both resident and non-resident investors. Currently, there is no long-term capital gains on listed securities in India while short-term gains are taxed at 10-30 per cent depending on the class of investors
4) The panel has suggested an increase in securities transaction tax (STT) to make good the tax revenue loss that may arise from abolition of tax on gains from transfer of listed securities.
5) As a step towards reassuring global investors, the Committee in its draft report suggested that GAAR provisions should not be invoked to examine the genuineness of the residency of entities in Mauritius. Mauritius is the most preferred route for foreign investments because of the liberal taxation regime in the island country. India has a double taxation avoidance treaty with Mauritius.
6) The "investment climate in the country has suffered (a) serious setback and investors' confidence has been hit mainly because of the concerns over the impact of retrospective tax laws and GAAR," said the Shome panel, a consultative body whose recommendations are not legally binding.
7) "GAAR is an extremely advanced instrument of tax administration -- one of deterrence, rather than for revenue generation," the panel wrote in a report posted on the Finance Ministry website, suggesting the government does not begin enforcing the rules until 2016-17.
8) The general anti-avoidance rules (GAAR), first proposed in the budget in March, was meant to target tax evaders, partly by stopping Indian companies and investors from routing investments through Mauritius or other tax havens for the sole purpose of avoiding taxes.
9) In May the then Finance Minister Pranab Mukherjee had deferred the proposal to April 2013 to placate investors.
10) On Tuesday, Finance Minister P Chidambaram urged officials not to hound the country's taxpayers, despite pressure to meet annual tax targets.
(With inputs from PTI and Thomson Reuters)
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