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Updated: June 29, 2012 02:51 IST

PM to ‘clarify’ Pranab’s tax measures

Ashok Dasgupta
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Veteran Congress leader Pranab Mukherjee with Prime Minister Manmohan Singh and UPA Chairperson Sonia Gandhi after filing nomination papers for the Presidential election in New Delhi on Sunday. Ramesh Sharma
The Hindu Veteran Congress leader Pranab Mukherjee with Prime Minister Manmohan Singh and UPA Chairperson Sonia Gandhi after filing nomination papers for the Presidential election in New Delhi on Sunday. Ramesh Sharma

Retrospective tax, transfer pricing issues being re-examined

Taking charge of the Finance portfolio after the resignation of Pranab Mukherjee, Prime Minister Manmohan Singh has kindled hopes of a rethink on the controversial tax measures the departing Minister leaves behind.

While the Finance Ministry maintained on Thursday that there were no plans to defer the roll-out of the General Anti-Avoidance Rules (GAAR) beyond April 1, 2013, it said it was committed to providing “clarifications” to the PMO within two or three weeks on tax matters, which have raised the hackles of industry ever since the budget was presented.

Besides transfer pricing issues, the clarifications, in particular, would pertain to the retrospective amendment of Section 9 of the Income Tax Act — now popularly known as the Vodafone tax — which now forms apart of the Finance Act, 2012, on enactment of the Finance Bill.

Speaking to journalists, after another meeting with the Prime Minister a day after Dr. Singh in his review meeting with top Finance Ministry officials referred to “problems on the tax front which need to be addressed” as they were among the “many factors that have contributed to this general negative mood,” Finance Secretary R.S. Gujral said: “The Prime Minister’s Office sought clarifications on taxation issues and Section 9 of the Income Tax Act [related to tax on indirect transfer of assets]... We asked them to give us two-three weeks’ time.”

Under the amended provisions of Section 9 of the I-T Act, 1961, with retrospective effect, Vodafone would now be liable to pay about Rs. 20,000 crore (including interest), if and when a tax demand is raised by the authorities, though the British telecom major had won its case in the Supreme Court under the earlier legal framework.

While not giving any indication as to whether clarifications on the retrospective tax law were likely to result in any softening of the government’s stance, compared with what obtained when Mr. Mukherjee was Finance Minister, Mr. Gujral, who also heads the Revenue Department, sought to scotch speculation on deferment of the GAAR beyond April next year, as was indicated by the Finance Minister in his reply during the debate on the budget.

There is “no deferment... the GAAR is staying,” Mr. Gujral said, pointing out that the Finance Ministry would shortly issue draft explanatory guidelines on the GAAR for public comments. “We have finalised the GAAR draft rules after three meetings with the stakeholders. The draft will have examples for what would be deemed as permissible and impermissible arrangement.”

Late at night, the Central Board of Direct Taxes (CBDT) went into fast-forward mode to clear the confusion in the minds of foreign investors and issued a 23-page draft guidelines on the implementation of the GAAR in terms of Section 101 of the I-T Act with illustrative examples of cases, in which the provisions of the law would be invoked.

“The GAAR will be applicable for income arising from April 1, 2013. Certain grey areas have been highlighted. We need to clear the legislative intent of the proposal,” Mr. Gujral said. He pointed out that stakeholders would have 15 days to offer comments on the draft rules, after which the Finance Ministry would come out with the final guidelines.

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It was wrong-headed step on the part of Mr. Mukherjee to propose retroactive tax measures in the midst of turmoil in Indian economy and crisis in Indian currency valuation. Under Mr. Mukherjee Indian economy has deteriorated at an alarming level. I hope now that Mr. Mukherjee is all but 'elevated' to the Presidential palace and its manicured lawns Dr. Mukherjee would do the needful and restore Indian economy to high growth path and bring back the excitement and vibrancy that was missing during the last couple of years.

from:  Jitendra Dutta
Posted on: Jun 29, 2012 at 21:15 IST

Hope Dr. Singh takes a consistent stand against all retrospective amendments and not one where foreign investors are involved. GOI's first obligation is to its citizens. Not rolling out GAAR which is a feature in many developed nations or giving special treatment to routes suspected of being used for roud-tripping of undisclosed and tax-avoided income is a retrogade step.

from:  Bhaskar Sen
Posted on: Jun 29, 2012 at 08:29 IST

CBDT clarifications can not contradict / override legislative provisions and Courts are not bound by it. Now Pranab Da is out, political minions would bow before FIIs for temporary gains. Sadly SC reversed Bombay High court judgement in Vodafone case which was progressive as It asked for splitting gains and taxing benefits relating to assets in India.

from:  Atma Gandhi
Posted on: Jun 29, 2012 at 06:51 IST

It is a very good thing that happened to have Dr.ManMohan Singh as in charge of Finance Portfolio. We all hope that all tax laws will be reviewed.Tax levy with retrospective effect that too from 1962 is a dampener for foreign investors. Such draconic laws are only possible in banana republic. Not in a country like India which keeps its ethical standard at high pedastal. Rajaji condemned the law on Privy Purse by Indira Gandhi. Once promised by Govt of India it should endeavour to keep its word at all cost-not to be carried away by vote-bank politics. Whole India is looking forward for revival of stock market and improvement of economy.

from:  T.Raghavan
Posted on: Jun 29, 2012 at 05:04 IST

We have seen enough about the power our Indian President has vs. our prime minister, then why all this hullabaloo about this. We need our elected people to show the same enthusiasm on our economy.

from:  Raj S Ram Dublin Ca
Posted on: Jun 29, 2012 at 03:07 IST

Are the economic and financial policies of the Manmohan Singh government going to be managed by the market or the government itself? Are we seeing the real reason why Pranab Mukherjee is sought to be moved upstairs?

from:  K.Vijayakumar
Posted on: Jun 29, 2012 at 02:34 IST

Apparently, there is some truth behind the recent article in 'The Hindu', which spoke
about the foreign hand in the internal affairs in the country and why the business
houses wants Mr.Mukherjee to leave the post. At that time, that was a pure
analytical article, but events unfolding is adding substance to the claims of the
article...

So, what next? FDI in multi-brand retail? And make us eat the processed, tasteless,
GM, unhealthy food so that some rich can become richer?

from:  Bharat
Posted on: Jun 29, 2012 at 01:23 IST
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