From Our Special Correspondent
Daijiworld Media Network - Bangalore
Bangalore, Jul 3: As the General Anti-Avoidance Rules (GAAR) have created bad perception about the Indian tax laws among global investors, the proposal should be put off well beyond April 2013 and at least upto 2015, ASSOCHAM President Rajkumar N Dhoot said on Monday July 2.
Dhoot said GAAR has serious implications for the tax-payers and investors – both domestic and global. “No rush job should be done because India cannot afford to send a signal suggesting there is no stability in taxation policies,” he said.
Each and every provision of the anti-avoidance rules should be debated and discussed threadbare by all the stakeholders -- industry, tax planners, legal professionals and tax administrators -- so that a well-thought out proposal is placed before Parliament.
“Since it would be a big exercise, one year is not good enough,” he said.
A similar proposal was debated in Britain for four to five years before they implemented it, he said adding the timing of the GAAR was also not correct.
``We cannot afford to scare away investors in the stock market at a time when the big concern is to halt the capital outflows and to damage-control routing of the rupee,” Dhoot said.
He said the foreign institutional investors (FIIs) are quite a touchy. They build and destroy perceptions about countries in a very short-time.
``Negative perception, unfortunately, feeds on and even influences the credit rating agencies,” he said adding: ``This is exactly what has happened in India.”
These perceptions were built especially after the GAAR was introduced in the Budget.
It would be in the fitness of things if the proposal is put on the backburner so as to allow sufficient time for a thorough debate, he said.
Industry Perception is Changing
Dhoot, however, took satisfaction in the fact that things appear to be changing in the last one week and the government looks sincere in winning back the investor confidence.
This was also highlighted by a quick poll of about 150 CEOs by ASSOCHAM. They all agreed that the business confidence is looking positive, of late. The stock market too has responded well and the rupee is beginning to look stable.
The ASSOCHAM President urged the Prime Minister Dr Manmohan Singh, who
is also looking after the finance portfolio, to overhaul the country’s tax administration so that it becomes transparent, less discretionary and totally free from Inspector Raj.
“We hope the Direct Tax code gets passed by Parliament and gets implemented this year,” said Dhoot.
DTC would infuse sense of certainty among the tax-payers and investors. Likewise, introduction of the Goods and Services Tax would be indeed a event bringing in drastic changes in the country’s tax administration.
Encourage Savings, Investment
On the debate on tax avoidance, the guiding principle should be incentivising the savings and investment, Dhoot said.
“If the tax breaks are given to promote savings and investment, tax-payers should be free to do his tax-planning in a manner that he saves to invest in nation-building. That should not be taken as tax avoidance and should not attract the much-feared GAAR.
Tax planning should rather be encouraged so long as it goes to the capital formation in the country.
“India would continue to need huge investment for growth and equity. It has to largely come from domestic sources. FIIs and FDI will also complement the domestic sources, Dhoot said.
RBI Decision on Interest Rate Wrong
As much as 93 per cent of industries in the small and medium enterprise (SME) sector opine that the Reserve Bank of India’s decision to keep the interest rate unchanged was completely out of line, according to a quick poll conducted by the Associated Chambers of Commerce and Industry of India (ASSOCHAM).
It conducted a telephonic interview with about 100 SMEs across India during the last fortnight to ascertain their views on RBI’s decision of not to change the interest rates in its mid-quarter monetary policy review on June 18.
ASSOCHAM sought the feedback of the SME industry as to how much they wanted the RBI to interest rates to help revive the growth of the industry.
About 39 per cent of respondents reckoned that the apex bank should immediately cut down the interest rates by 150 basis points, while about 36 per cent said the interest rates should be brought down by 100 basis points.
About 86 per cent of the respondents said that high rate of interests is having a negative impact on their business as their organizations droop under the burden of ever-rising lending rates and rest of them said this move will not impact their trade much as they are not heavily dependent upon bank finances, said the survey said.
SME Sector Hit by Macro-Economic Slowdown
“The SME sector had already been grappling with macro-economic slowdown together with global uncertainty and rising interest rates put an extra burden on these small capital organizations which are heavily dependent upon the banks for their finance requirements,” said D S Rawat, secretary general, ASSOCHAM, while releasing the findings of the survey.
The ASSOCHAM representatives also tried to ascertain the impact of high costs of borrowing on the firms’ business to which about 43 per cent respondents said their cost of credit had increased by about 5-10 per cent while about 32 per cent respondents said their cost of credit soared by up to five per cent.
While about 18 per cent did not respond, of the remaining about three per cent said their cost of credit has increased by about 10-15 per cent and four per cent respondents said cost of credit increased by over 15 per cent.
About 79 per cent of respondents said their investment plans had been adversely impacted by RBI’s current move
Nearly half of the overall reckoned that investments had declined by about 5 to 10 per cent, while 21 per cent did not respond to this about 11 per cent said investments declined by about 10 to 15 per cent and an equal number of respondents said it had declined by up to five per cent. Barely 7 per cent respondents felt that investments had declined by over 15 per cent.
According to ASSOCHAM, there are about 31.1 million MSMEs across India employing over 73 million people and produce over 6,000 different products. Besides, the sector contributes about 40 per cent of India’s gross exports and 45 per cent of country’s manufacturing output.