The Central Government is yet to decide on the retrospective taxation issue, Parthasarathi Shome, adviser to the Finance Minister, said here on Saturday.
“The government has accepted most of the recommendations on General Anti-Avoidance Rules (GAAR) suggested by the panel chaired by me. But the government is yet to accept the issue on retrospective taxation,” Dr. Shome told an interactive session organised by the Calcutta Chamber of Commerce. He said that since India followed the source-based taxation rule, it was imperative that transfer of shares of a company abroad with assets in India be taxed, like what happened in the Vodafone and IBM cases. “But giving a retrospective effect will send wrong signals to investors and cause uncertainty. It should be in the rarest of rare cases,” Dr. Shome said.
Dr. Shome said that the government was working on a resolution which would be applicable to all companies facing this problem. He said that the government was also planning to include Controlled Foreign Companies (CFCs) within the Direct Taxes Code (DTC) where Indian subsidiaries were operating abroad in low-tax jurisdictions. Also, thinly capitalised companies, having more debt than equity, would be brought under GAAR.
Dr. Shome said GAAR would not be used as a tax generation tool, but to prevent erosion of the tax base by avoidance. He also said that the DTC and the GST were likely to be introduced in 2014-15 fiscal.