General Anti-Avoidance Rules did not exist even in Indiansí imagination till a year ago; today, they are the talk of the town. They did not come out of thin air; they were produced by the magician government out of its turban. At their very mention, businessmen panicked. The finance minister sought to assuage their fear by saying that the rules will not be enforced till the end of this financial year. But that has actually prolonged the scare; it is as if the condemned man has to stand on the stool with the rope around his neck for a whole year. He no doubt wishes that he would be hanged immediately and done away with. Better the peace of the grave than the reassurances of worthies from the finance ministry. The businessmenís panic would suggest that they have already admitted their guilt. There must be much avoidance, not to mention evasion, for the rules to unearth if their very mention causes such widespread fear. The businessmenís behaviour proves that they are sitting on mountains of avoided alias evaded taxes. The taxmen cannot wait to start digging the mountains. So much dirt would come out of them that the finance minister can pay off the mountain of debt he and his predecessors have amassed, and even start lending out the remaining surplus to businesses devoid of avoidance. Such businesses may be too few, in which case he can buy up at fire sale prices the businesses his excavations have sent into bankruptcy. In earlier times that used to be called nationalization. Pranab Mukherjee can realize the dream of his Congress icons who failed to create a socialist economy.
But it is also possible that the businessmenís panic is related to their experience of tax collectors ó their unfairness, arbitrariness, slowness and corruption. The businessmen believe that the finance ministry has invented the anti-avoidance rules as a modernized, streamlined version of the lucrative harassment tax collectors used to inflict on taxpayers before Manmohan Singh became finance minister 21 years ago and reduced income tax rates. Many a taxman saw his bright future destroyed by tax reductions that followed the reforms. Now their fortunes can be restored without resorting to extortionary taxes, just by giving them the power to brand every business transaction as motivated and mala fide.
Either version may be right; maybe both are right to some extent. Whichever is the case, one thing is certain: anti-avoidance rules will depress business sentiment and reduce businessmenís urge to invest, innovate and make the economy grow. The growth rate has come down considerably in the past year without any help from tax authorities; thanks to their innovative anti-avoidance rules, it will collapse altogether. Although the chief economic advisor repeatedly forecasts disaster for Europe in 2014, he has been reticent on the fate of the Indian economy. Now it can be foreseen without his help.