PM to clarify on GAAR implementation in 2-3 weeks

Singh plans to issue an 'explanatory note' on portfolio investments within the next two to three weeks to clear up confusion over tax policy that has rattled investor confidence in India.

hidden June 28, 2012 16:01:27 IST
PM to clarify on GAAR implementation in 2-3 weeks

Prime Minister Manmohan Singh will seek within the next two to three weeks to clear up confusion over tax policy that has rattled investor confidence in India, a government official said on Thursday.

Singh plans to issue an "explanatory note" on portfolio investments, an official in his office told Reuters, without giving details about what the statement would say or which tax issues it would address.

However, it is widely known that the prime minister's office was unhappy with the way that former Finance Minister Pranab Mukherjee handled controversial tax proposals that were part of the 2012/2013 budget announced in March.

PM to clarify on GAAR implementation in 23 weeks

GAAR aims to target tax evaders, partly by stopping Indian companies and investors from routing investments through Mauritius or other tax havens for the sole purpose of avoiding taxes. Reuters

The proposals to crack down on tax evasion and allow the government to make retroactive claims on overseas deals involving Indian assets sparked alarm in foreign capitals, including Washington, and an exodus of funds from India, although it remains a popular destination for investors.

Singh said at a meeting of economic advisers and top finance ministry officials on Wednesday that "reviving investor sentiment" was a top priority. He temporarily assumed control of the finance ministry on Tuesday after Mukherjee stepped down to run for president.

"There is a lot of confusion about taxation," said the official in the prime minister's office, adding that Singh's policy clarification could be expected in "two-to-three weeks".

Economists and investors said the tax proposals announced in March were vague and confusingly worded, creating uncertainty at a time when the country needs capital inflows to help plug a widening current account deficit.

Mukherjee sought to placate investors in May by deferring the tax evasion proposal, the General Anti Avoidance Rule, or GAAR, until 2013.

GAAR aims to target tax evaders, partly by stopping Indian companies and investors from routing investments through Mauritius or other tax havens for the sole purpose of avoiding taxes.

REVIVING CAPITAL INFLOWS

A finance ministry official said the government recognised that a revival of capital inflows would prop up the equity market, bringing retail investors into mutual funds. This in turn would deter investments in gold and other assets, which widen the current account deficit.

Singh told officials at Wednesday's meeting on the economy that he was concerned that "investor sentiment is down and capital flows are drying up."

He said he wanted to revive the "animal spirit" of an economy that was roaring with growth of well above 9 percent in the three years before the global financial crisis in 2008-2009.

India's economy is growing at its slowest pace in nine years, the rupee is the worst performing currency in Asia this year, inflation remains high, industrial production has flatlined and the country faces the threat of having its credit rating downgraded to junk.

Many investors and economists blame weak leadership and muddled policies that have failed to curb government spending and alienated many foreign investors.

Reuters

Updated Date:

Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.

also read

Indian economy witnessing strong recovery, says Nirmala Sitharaman; announces stimulus measures
Business

Indian economy witnessing strong recovery, says Nirmala Sitharaman; announces stimulus measures

Energy consumption growth trended higher in October at 12 percent year-on-year, said the finance minister

In new memoir, Barack Obama describes modern-day India as success story 'despite bitter feuds within political parties'
India

In new memoir, Barack Obama describes modern-day India as success story 'despite bitter feuds within political parties'

The former US president writes that the transition to a more market-based economy in the 1990s unleashed the extraordinary entrepreneurial talents of Indians

India is losing Rs 75,000 cr in taxes per year due to tax abuse by MNCs, evasion by individuals, says report
Business

India is losing Rs 75,000 cr in taxes per year due to tax abuse by MNCs, evasion by individuals, says report

The State of Tax Justice report said $10.3 billion, or 0.41 percent of the country's $3 trillion GDP, is lost in taxes every year due to global tax abuse