Govt mishandled GAAR, scaring foreign investors: Sinha

Amid controversies over Vodafone tax matter and GAAR, BJP hit out at the government saying it has mishandled these issues creating scare and uncertainty among the foreign investors.

The main Opposition party suggested that Prime Minister Manmohan Singh and former Finance Minister Pranab Mukherjee were not on the same page with regard to the retrospective amendment to tax laws against the backdrop of Vodafone case, leading to the current precarious situation.

Senior BJP leader and former Finance Minister Yashwant Sinha went to allege that the Prime Minister had given a wrong assurance to his then British counterpart Gordon Brown that there would be no retrospective amendments to tax laws.

He underlined that the Prime Minister cannot distance himself from the policy action taken by Mukherjee, who resigned last month to contest for President elections. “This (Vodafone) case is a clear case of total mishandling. Without disputung the principles of government levying capital gain tax, I am saying this case has been completely mishandled,” he said.

The government has amended Income Tax Act with retrospective effect to bring into tax net all overseas deals involving domestic assets. The amendment would result in a Rs 20,300 crore tax and interest liability for UK-based Vodafone telecom company arising out of USD 11.2 billion Vodafone-Hutch deal of 2007.

Asked about the perception that this development has created a scare among the foreign investors, Sinha agreed. “This case is bound to have an impact. Foreign investors are interpreting it as uncertainty. He cannot be sure what will happen 10 years, 5 years from now because tax laws can be tweaked with retrospective effect,” he said.

“I am not commenting on individual case. What I am saying is when you take a decision of this kind, then you should be aware of the consequences, what is going to be the economic consequence of a decision of this kind,” Sinha said.

Sinha said Singh had written a letter to Brown in 2007 which contained “factual error” that there “cannot be tax legislation with retrospective effect”.

He said laws have been amended with retrospective effect to clarify legislative intent and it was not limited to India but other countries like UK also have done so. Sinha’s attention was drawn to the impression that the Prime Minister, after taking direct charge of the Finance Ministry, appeared to be inclined to take a relook at the retrospective tax issue.

Soon after taking charge of the Finance Ministry, Singh had identified tax issue as a problem which needed to be addressed to attract investments, a statement that was seen as his inclination to address the Vodafone issue.

“He (PM) can do anything but he has to come to Parliament to change the law,” the BJP leader said while pointing out that the retrospective amendment was now the law of the land. When asked about BJP’s stand if the government wanted to tweak with the law, he said, “let’s see what the government does. We will act after that.” He referred to the controversy over GAAR (General Anti-Avoidance Rules), saying it was another area mishandled by the government and created a scare among the investors.

Sinha, who heads the Parliamentary Standing Committee on Finance, said that GAAR could be introduced but with certain safeguards as was prescribed by the panel in its report. “We have mentioned a number of safeguards which must be put in place before you implement GAAR. I am not opposed to GAAR. But with a number of safeguard which the committee has pointed out, including the accountability of the tax administration,” he said.

GAAR was proposed in the Budget presented by Mukherjee on March 16 but there was an outcry, forcing him to postpone its implementation till April next year. After Mukherjee quit the government, the Finance Ministry issued draft rules on GAAR. But Singh was quick to distance himself, saying he had not seen these.

(curtsey : first post)

Rupesh Yatesh Dalal
Head Research Department

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