New Delhi, July 15: The newly formed GAAR panel will have to bear in mind the need to maintain Know-Your-Customer norms not only to track black money but also to crack down on terror funding, making the task of framing new guidelines a difficult one.
Top finance ministry officials aver that GAAR (General Anti-Avoidance Rules) was meant both to garner taxes from investments routed through tax havens and address concerns within the country and the West over India being a major conduit and recipient of terror funding.
Last week, the government announced that it was setting up a panel on GAAR, under Icrier director Parthasarathi Shome, which will carry out more wide-ranging consultation and submit its report by September.
North Block officials pointed out that GAAR’s implementation was put off by a year as the draft rules needed to be reworked to crease out the rough edges and possibilities of misuse by the bureaucracy.
However, the officials argue that in reworking the rules, the basic provision of enforcing KYC norms on investors coming in through tax havens needs to be maintained or else India stands the risk of violating various international treaties it has signed to curb terror funding.
Last year, the government had informed the Lok Sabha that around 10 cases of suspicious stock market deals linked to terror financing were discovered. In 2007, the then National Security Adviser M. K. Narayanan, currently the governor of Bengal, had voiced apprehensions that terror funds were being routed into the Indian stock markets through dubious overseas accounts.
Officials point out that one of the basic tenets of GAAR is that investors have to disclose fund ownership and channels. Besides, international banks will have to take responsibility for KYC norms on their participatory notes.
“Dilution of GAAR norms to the extent that these norms (KYC) are disturbed or placing it on the backburner will be counter-productive in attempts to identify and combat terror financing,” the officials said.
Shome himself is in a way the progenitor of the introduction of GAAR through his reports on tax policy framed for the government. Officials believe the eminent economist can be expected to come up with a report which will address North Block’s concerns while addressing the demand for making GAAR simpler and more investor friendly.
Taxation and legal experts have demanded that the government should clarify specific eligibility norms for investors to claim domicile status in a tax haven.
Industry associations have also complained that the absence of guidelines is causing uncertainty in business arrangements.
Industry expects the highly inequitous provision in relation to the burden of proof placed on the taxpayer be dropped and the approving panel for GAAR be designed in a more objective manner.