Tax Law Flaws: Industry Voices Its Concerns
Tax Law Flaws: Industry Voices Its Concerns
While there are considerable apprehensions in the industry over this as well, Revenue Secretary Shajtikanta Das has assured the government will soon take a view on wether the tax law GAAR will be implemented from April,2015. The General Anti-Avoidance Rules are attracting a lot of flak from the industry already and Das announced that the new government will “examine the whole matter and take a decision” on the sidelines of an event at FICCI.
The government had earlier proposed the imposition of the GAAR from April 1,2015 for claiming tax benefits. The rules were in place for minimising tax avoidance for investments created by entities in tax havens. According to the existing proposal, investments entered into after March 2013 will be covered under GAAR from the assessment year 2016-2017.
After Minister of State for Finance Nirmala Sitharaman indicated in a written reply to the LS that GAAR will be applicable from April 1, 2015. matters have now come to a head.
Another chief concern is the flat 20 percent tax on debt mutual funds which has been proposed with effect from April 2014. CBDT will issue a clarification in the matter as this is not retrospective at all, according to the Revenue Secretary. Finance Minister Arun Jaitley has indicated in the Budget speech h that in case of debt oriented mutual finds, capital gains from transfer of units held for more than one year is taxed at a concession of 10& whereas direct investment in banks and other debt instruments will be charged a higher rate of tax.
The FM indicates that this tax arbitrage opportunity hardly benefitted retail investors as the percentage is extremely small amidst mutual fund investors. In order to remove the tax arbitrage, the FM proposed an increase in the rate of tax on long term capital gains from 10 to 20 percent on transfer of units of such funds.
The aim is to increase the period of holding in respect of such units to 36 months from 12 months. The effective date for this is the financial year 2014-2015 or the income accruing during this year. For mutual fund units that have been redeemed in April or May, he said the CBDT will provide the clarification. He also said that there is no creation of fresh tax liability.
The NDA government is till to take a call on the implementation date of the GAAR. The law will empower the tax department to invalidate transactions undertaken to ensure deliberate avoidance of payment of taxes. The new government is yet to take a stand on GAAR.
Raghu Kumar the Co-founder of RKSV has indicated that GAAR sets out rules to help tax avoidance to focus on firms for chaneling profits through tax havens while the purpose is focused on domestic firms looking to avoid the payment of proper taxes. This may not have much impact on FII inflows. The FIIS are also exempt from many GAAR rules applicable for domestic firms. What is sauce for the goose should be sauce for the gander as well. Tax laws are certainly a weighty matter in current times.
