Assocham fears new anti-evasion proposals may be used to harass taxpayers

Industry chamber Assocham has opposed the anti-tax evasion proposals suggested in the budget, including having retrospective laws and giving wide discretionary powers to tax officials.

Assocham said issuing broad General Anti-Avoidance Rule (GAAR) — targeted at cases like the Vodafone-Hutch deal — without fine-print and safeguards is a recipe for disaster and may be used to harass tax-payers.

“Apprehensions have been expressed by various external bodies that unless accompanied by a decrease in discretionary powers and wholesale reform of revenue administration, the move may result in huge risks. GAAR gives excessive discretion in the administration of tax laws,” Ved Jain, chairman of the ASSOCHAM National Council on Direct Taxes said.

In most countries that have adopted GAAR, detailed guidance is available which greatly helps clear fears and uncertainties around its implementation.

“Since the fine print of guidelines in India is not currently available, it is causing a lot of uncertainty with regards to tax implications of several businesses and non-business arrangements,” he said.

The GAAR provisions were originally slated to be part of the Direct Tax Code. There were large number of representations and therefore the Parliamentary Standing Committee had examined it in great depth. Finally, the Committee came out with a detailed report in which a number of significant recommendations were made.

These covered critical aspects like burden of proof resting with the Revenue Department, appointment of independent persons in the GAAR panel and removal of the treaty’s override provisions which impinge on India’s credibility as a reliable tax treaty partner. But the Finance Bill has not considered any of these recommendations, Jain said.

Besides lack of fine-print, Assocham also flagged the decision to bring in retrospective effect for these laws — applying new laws to events that happened before such laws came into effect.

“The Finance Bill has carried out an unusually large number of retrospective amendments. These retrospective amendments have primarily been made to neutralise decisions of the various Income Tax Appellate Tribunals, High Courts and even the Supreme Court,” Assocham noted.

“Such retrospective amendments will result in clear violation of principles of natural justice since no assessee can ever envisage a retrospective amendment at a future date. Also, the retrospective process results in a breakdown of the judicial system and creates uncertainty in the taxation system,” it added.

Assocham also said that domestic transactions between related parties should not be subject to transfer pricing regulations. Alternatively, transactions by a listed entity should not be governed by transfer pricing rules as such transactions undergo multiple checks and compliances, it added.

Another Budget proposal, of re-opening assessment cases for the past 16 years, against six years at present, has made people with foreign assets jittery. The industry fears these can be misused to harass taxpayers, Assocham added.

“GAAR can wait as the Direct Tax Code is likely to be considered by Parliament now, said Mr . There is a need to have more debate on the issue,” the forum added.