JULY 18, 2014

By TIOL Edit Team

THE Budget for 2014-15 might have brought some clarity in tax policies as claimed by Revenue Secretary Shaktikanta Das the other day. The clarity at the best can be discerned on certain issues over the short-to-medium term horizon.

The BJP-led NDA Government's maiden budget has, however, left the taxpayers groping for long-term clarity in the absence of its stance on four major tax reforms.

These are: implementation of General Anti Avoidance Rules (GAAR), enactment of Direct Tax Code (DTC) law, introduction of Goods and Service Tax (GST) and implementation of tax reforms including organizational changes recommended by Tax Administration Reform Commission (TARC).

The Government itself is unclear whether it should change the content and contours of the reforms proposals that it has inherited from the UPA Government. It is also hesitant about fixing the timelines for implementation of reforms.

Consider first the Finance Minister Arun Jaitley's take on DTC. In his budget speech, he noted that DTC Bill, 2010 had lapsed with the dissolution of 15th Lok Sabha. In March 2014, UPA had placed in public domain revised DTC after factoring in suggestions from different quarters.

Mr. Jaitley stated: "The Government shall consider the comments received from the stakeholders on the revised code. The Government will also review the DTC in its present shape and take a view in the whole matter."

This is an open-ended statement without any timeframe, whereas his stance on GST is relatively better but falls short of specifying target for launch.

In the budget speech, he stated: "I have discussed the matter with the states both individually and collectively. I do hope we are able to find a solution in the course of this year and approve the legislative scheme which enables the introduction of GST."

The budget documents are, however, completely silent on both on the TARC's recommendations and the implementation of GAAR.

The Finance Ministry, however, sprang a surprise a day after the Budget. In reply to a question in Lok Sabha, the Ministry reportedly replied that GAAR would be implemented with effect from 1 April 2015.

This disclosure implied that the Government was advancing the implementation date. This was thus at variance with The Finance Act 2013 under which revised GAAR would take effect from 1st April, 2016 and would, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.

With the share prices nose-diving following the Ministry's reply, Mr. Das had to step in to clear the picture. He reportedly told the industry representatives that the Government has not yet taken a call on implementation of GAAR and the Ministry's reply was with regard to legal status. He added the government was not averse to looking into industry demand for deferring enforcement of the rigorous anti-tax avoidance rules. "There is sufficient time. We are still eight months away from the deadline."

American Chamber Of Commerce (AMCHAM), for instance, has thus suggested that "the application of GAAR should be deferred by two more years."

In its pre-budget memorandum for 2014-15, AMCHAM said: "There is a possibility of surge of litigation by introduction of GARR without adequate guidance."

As rightly suggested by The Institute of Chartered Accountants of India, "To ensure that, the extra ordinary powers are not exercised by revenue officers arbitrarily or de hors the key objects behind introduction of GAAR, it is very important that the apprehensions of the taxpayers are addressed at the earliest."

GAAR case shows that the new Government is as lackadaisical as any other previous Government in drafting written replies to questions posed in Parliament. Good governance demands that replies must give the correct picture and reflect the Government's considered view on any issue. This approach would obviate the need for post-reply clarifications.

To put the controversy to the rest, the Government should ensure that the provisions of GAAR are aligned with the action plan proposed under the Base erosion and profit shifting (BEPS) project of Organization for Economic Cooperation and Development (OECD) that India has committed to implement.

The Finance Ministry should, in fact, put an end to the tax policies policy flux by keeping in view its electoral promises.

In its manifesto for Lok Sabha polls released in April 2014, BJP had stated: "UPA Government has unleashed 'Tax terrorism' and 'uncertainty', which not only creates anxiety amongst the business class and negatively impacts the investment climate, but also dents the image of the country."

The Manifesto continued: "BJP realizes the importance of having a Tax Policy Roadmap, so that people are aware of the future and plan accordingly. We will: provide a non-adversarial and conducive tax environment; rationalize and simplify the tax regime; overhaul the dispute resolution mechanisms; bring on board all state governments in adopting GST, addressing all their concerns and provide tax incentives for investments in research and development, geared towards indigenization of technology and innovation."