At present, the General Anti-Avoidance Regulations (GAAR) in India are set to kick in effective April 1, 2015. The Budget 2014 which was expected to recast and defer GAAR has remained silent. However, the subsequent announcement by the Finance Minister to revisit GAAR provisions in its current form and the effective date of its implementation is a welcome move.

There is no doubt that the GAAR provisions need to be recast and deferred for at least 2 years due to the following factors:​​

Onus on the taxpayer:

In the present form, the onus for justification that the transaction is not an impermissible avoidance arrangement whose main objective is to obtain tax benefit lies entirely on the tax payer. This effectively means that the taxpayer is deemed to be guilty unless he proves his innocence. The burden of proof must be on the tax authorities to demonstrate that the transaction is impermissible under GAAR. ​​

Unbridled power with the Tax authorities:

The provisions of GAAR in its current form provide for far reaching and unbridled powers with the tax authorities. This power coupled with the ground level realities of tax administration will result in great uncertainty and will result in great uncertainty. The recent developments in case of Vodafone, Shell and others do not inspire confidence that these provisions will be implemented in an objective and tax friendly manner. The implementation of the advanced provisions of GAAR needs intense training to the tax authorities as (i) the onus of justification is on the tax payer, (2) the provisions in current form have an overriding effect on the tax treaties which India has with more than 86 countries. The tax administration needs to demonstrate greater objectivity and transparency to inspire confidence of all stakeholders. ​​

Adverse Impact on Investment Climate:

In the past couple of months, we have witnessed a renewed resurgence of interest by Multinationals and Indian corporates in the Indian growth story and perhaps as the most preferred investment destination in the world.  We as a country cannot let this opportunity go. The GAAR in its current form, if implemented would act as a huge dampener to the confidence of the investor community. To leverage India’s position as a leading investment destination and to improve ease of doing business, it is imperative to recast and defer GAAT provisions for the moment.

(Above are the views of Dr. Suresh Surana, Founder, RSM Astute Consulting Group)

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June 2021