An expert panel set up by Prime Minister Manmohan Singh to review the provisions of the General Anti-Avoidance Rules (GAAR) — or rules to prevent tax evasion — has asked for GAAR to be put off by three years, a move that’s expected to soothe the nerves of jittery foreign investors and help boost sentiment.
The panel headed by tax expert Parthasarathi Shome, which submitted its report to the finance ministry on Saturday, also said GAAR provisions should not apply to examine the genuineness of the residency of an entity set up in Mauritius. Experts say this clause is expected to calm foreign investors who route their investments through Mauritius with whom India has a double-tax avoidance treaty.
The Shome committee has also suggested that GAAR should only cover arrangements where the main purpose is to obtain a tax benefit, not those in which this is merely one of the purposes.
It has also recommended a monetary threshold of Rs 3 crore of tax benefit (tax only, not interest, etc) to a taxpayer in a year for applying the provisions of GAAR.
Explaining why it wanted GAAR deferred, the committee said, “GAAR is an extremely advanced instrument of tax administration — one of deterrence, rather than for revenue generation — for which intensive training of tax officers, who would specialize in the finer aspects of international taxation, is needed.”