The Parthasarathi Shome panel, asked to examine the issue of retrospectively applicable changes to tax rules, expects to finalise its report by the end of this month. Appointed by the Prime Minister, it was first entrusted with the job of concretising draft guidelines for the controversial General Anti-Avoidance Rules (GAAR). The mandate was then extended to the retrospective changes brought in this year’s Union Budget to tackle Vodafone-like cases, in the wake of the Supreme Court judgement rejecting the government stand that the Britain-based company owed it Rs 7,900 crore for the purchase in 2007 of a majority stake in Hutchison Whampoa’s Indian assets.
The British company acted through a Dutch subsidiary, while Hutchison Whampoa, based in Hong Kong, used a Cayman Islands unit. Vodafone has said it wasn't liable for taxes on the deal since it was conducted outside India. The government argued that taxes were due because the acquisition involved the transfer of India-based assets. In January this year, the SC, sided with Vodafone. Then, through this year’s Budget, the government amended the laws to enable such levies, and with retrospective effect, including the one in Vodafone’s case.
In the first part of its report early this month, the panel suggested delay in implementation of GAAR by three years and also removal of short-term capital gains tax. Those in the know of the committee’s deliberations said it had studied the retrospective amendment experience in other countries and received suggestions from various quarters.
They added the industry view was in favour of a full review of these amendments in the next Budget and also look at the possibility of not bringing these even prospectively. The argument in support is that because GAAR has been delayed, it would be difficult to implement the retrospective taxation.
Taxation experts it was well within the panel’s purview to suggest a review and if it was not doing so since Parliament had already approved the changes, it would have to suggest how to make the retrospective amendments implementable.
The finance minister has clearly indicated in recent weeks that the government will take a final decision on GAAR and the retrospective amendments on the basis of the panel’s report.