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his speech introducing the 2012-13 budget, the then
Finance Minister Pranab Mukherjee had declared his intention
to introduce a General Anti-Avoidance Rule (GAAR) to
counter ''aggressive tax avoidance schemes''. What GAAR
means is that even if a transaction appears to be legally
valid, if it is entered into for the sole purpose of
tax avoidance, then the Indian tax authorities can deny
tax benefit to the concerned entity. GAAR had become
necessary not only because of the enormous tax revenue
lost to the country, but also because India had acquired
the dubious reputation, normally associated with ''banana
republics'', of being a country at whose tax administration
multinational corporations could cock a snook with impunity.
The bulk of India's foreign capital inflows for instance
was routed through Mauritius, which is a ''tax haven'',
but with which India has a double tax avoidance treaty,
stipulating that taxes must be paid in the country of
domicile (not operation) , so that no tax need be paid
on gains made in India on FDI or FII so routed!
Even the Indian Supreme Court has been benign towards
such malfeasance: in 2003 a two-judge bench of the Court
had held the adoption of this Mauritius route as a legitimate
act of ''tax planning''! And more recently when HTIL sold
67 percent of an Indian company's share (Hutch Essar
Limited) to Vodafone and the Indian tax authorities
asked Vodafone to pay the capital gains tax on this
sale (which it could then pass on to HTIL), the Supreme
Court upheld Vodafone's contention that it was not liable
to tax since it had purchased the shares from a holding
company located in Cayman Island!
Mukherjee's speech expectedly aroused a howl of protest
from MNCs and Foreign Institutional Investors, so much
so that Mukherjee himself got cold feet and announced
that GAAR would come into effect only from April 1,
2013. After his departure, the new Finance Minister
Chidambaram put the proposal on hold, while Prime Minister
Manmohan Singh appointed yet another ''slot machine''
committee (where you get the report you want) headed
by Parthasarathi Shome, a former IMF employee who is
currently the Director of the most overtly neo-liberal
institute in the country, the ICRIER, to go into the
introduction of GAAR.
The Shome Committee has expectedly produced a report,
hailed by the Wall Street Journal and other mouthpieces
of finance capital, which recommends that the introduction
of GAAR should be kept in abeyance for three more years
beyond Mukherjee's deadline, i.e. until April 1, 2016!
The apparent excuse for doing so is that GAAR needs
to be applied ''intelligently'', and it will take that
long before the Indian tax authorities acquire the requisite
intelligence!
The Shome Committee does not stop there. It recommends
that GAAR should be applied only in cases where the
tax liability exceeds Rs.3 crores, i.e. the profit on
which tax is to be paid exceeds a threshold of 10 crores,
by which logic if profits are shown to be dispersed,
through ''transfer pricing'', then GAAR would never be
applied to them anyway. Likewise, if HTIL had sold HEL's
shares not in one lot but in a staggered manner, over
a period of time, then it would simply have escaped
GAAR totally.
But Shome does not stop there; he advocates an abolition
of the capital gains tax altogether! The Manmohan Singh
government has in any case done away with taxing what
are called ''long term capital gains'' (i.e. when securities
are held for a minimum period); and even the ''short
term capital gains'' at present are lightly taxed, at
a mere 10 percent. But now the idea is to do away with
this tax altogether. This is scandalous since even true-blue
bourgeois theorists draw a distinction between ''enterprise'',
which they laud, and ''speculation'' which they decry.
''Enterprise'' earns ''profit'' while ''speculation'' earns
''capital gains''. In India henceforth while profits will
be taxed, capital gains will not be, which is tantamount
to penalizing ''enterprise'' and encouraging ''speculation'',
a situation that even a bourgeois theorist would find
utterly bizarre.
That however shows the absurdity of the Manmohan Singh
government's thinking. It is so keen to start another
stock market ''bubble'' which it thinks will stimulate
growth, that it wishes to make every possible effort,
no matter how bizarre it may sound, to attract speculative
finance capital into the country. And it sets up ''slot
machine'' committees to legitimize every such effort,
no matter how outlandish and how ethically repugnant
such effort may be. The story, however, is by no means
going to end here. All these efforts, in the context
of the current world capitalist crisis, will come to
naught; so, we shall be seeing even more desperate and
reprehensible measures to appease foreign speculators
on the part of the Manmohan Singh government.
*
This article was originally published in People's Democracy
on 9 September, 2012.
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