Those who open their mouths are more likely to put their foot into them, and some people are more susceptible to foot-in-mouth disease. Even when it is moderate in intensity, the disease hurts performance more in certain professions. The finance minister’s is one of them. It is unfortunate that the minister does not take the risk seriously. P. Chidambaram has appointed a committee to advise him on the general anti-avoidance rules. It will give him a report in a few weeks. Its members are handpicked; none amongst them is unsympathetic to the government’s objectives. But there was always a minuscule chance of its saying that the rules are unnecessary or undesirable. The minister has gratuitously robbed it of the freedom to say so by telling Parliament that the infamous rules will be applied from 2014-15. This misuse of power might have been more forgivable if the minister had taken a few moments to explain why these rules, without which this country managed perfectly well for over a century, have suddenly become necessary.
One element in these rules is designed to tax transactions abroad relating to assets in India. The practice hitherto in this regard has been clear — that transactions are taxable in the country in which they are made. This is the rule followed by all countries, not just India. Mr Chidambaram’s predecessor wanted to overturn this rule retrospectively. If he had done so, sales in London of Indian coal mines in the 1920s or tea gardens in the 1930s would have become taxable today. Those who sold them are dead; tax notices would have to be sent to their heirs, who would no doubt have thrown them into the waste basket. The government would then have been obliged to send letters rogatory to Her Majesty’s government asking it to arrest the heirs and send them to India for robbing India of its legitimate taxes. The British prime minister would probably have consigned those derogatory letters to the waste bin. That would have caused a diplomatic incident, which the Indian prime minister would have had to take up in the next meeting of the Group of 20. This far-fetched possibility is raised here to make the simple point that it is in the country’s interest to stick to taxation of residents and avoid retrospective taxation. If Mr Chidambaram has to express himself on his predecessor’s goofs, this is what he should say.
His compulsion to self-expression is understandable. He finds the stakeholders at home and abroad extremely upset; their representatives meet him and convey their disquiet. He sees the urgent need to do something. So he makes a statement here, a remark there. But a statement is not action. What the rest of the world is looking for is a reversal of Pranab Mukherjee’s measures. If he cannot reverse them, Mr Chidambaram would be well advised to save his breath.