Timely rollback

The finance minister was being cautious.

Finance minister Pranab Mukherjee heeded criticism and took into consideration the current investment scenario in the country when he rolled back some budget proposals and delayed by one year the implementation of the General Anti-avoidance Rules (GAAR). Though he has rhetorically said that we did not eat lizards when there was no FDI, he would have been well aware of the need for foreign portfolio inflows when there is big current account deficit, the markets are down and the rupee is depreciating. Though this may be a passing phase, he was probably being cautious. The tough provisions against avoidance of tax in GAAR were necessary and are sound and perhaps he has only taken a step back to make them effective by winning investor confidence. The onus of proving avoidance has been shifted to the tax authorities from the tax payer, as it should be, and the GAAR panel will now have an independent member. These are trust-building measures which do not compromise the basic aim of GAAR. But it is not certain whether it will be implemented next year, when  the government will be susceptible to more pressures, because of the proximity of elections.

The finance minister did not give way on another budget proposal to amend the income tax law to retrospectively tax capital gains on overseas transfers of assets in India. But he has done well to clarify  that closed assessments of the past will not be reopened and existing double tax avoidance agreements will not be affected. The immediate reason for the amendment was the Vodafone deal on which the government had raised a tax demand. The government has stuck to its position and the issue may have to be judicially settled now.

The rollback of 1 per cent excise duty levied on non-branded jewellery is a negative because the proposal was aimed at curbing the flow of unaccounted money into gold and jewellery. The pressure exerted by jewellers seems to have won. In the process branded jewellery was also exempted from the levy. This could have been avoided. The wisdom of withdrawal of the proposed small levy at source on sale of immovable property is also debatable, though this was done on perceived difficulties in compliance. It will not go unnoticed that some of these reliefs related to monitoring of black money. That being so the promise to unveil a white paper on black money will not impress the public.