What They Said: India's Changing Tax Rules On Monday, India's Finance Minister Pranab Mukherjee said the country will delay by one year the adoption of the "General Anti-Avoidance Rules," guidelines designed to curb tax evasion, and ease some proposed duties and taxes that had spooked foreign and domestic investors alike. Soon after the announcement was made, India's Sensex index shot up by nearly 300 points, but markets dropped on Tuesday. Experts, politicians, journalists and businessmen weigh in on the changes: Editorial, The Hindu: "Capitulating to unrelenting pressure from stakeholders affected by his stringent budget proposals, Finance Minister Pranab Mukherjee has rolled back some while delaying implementation of others, notably the anti-tax evasion provisions popularly called GAAR (General Anti-avoidance Rules). The pressure brought to bear by angry investors and traders, depressed stock markets and a rupee in free fall was probably too much to bear. Mr. Mukherjee must also have been conscious of the importance of foreign portfolio flows to bridge the widening current account deficit, estimated to be around 4 per cent for 2011-12, while deciding to defer the implementation of GAAR until the next financial year. These were a red rag to foreign investors, some of whom held back fresh investments in the period since the budget. The Finance Minister has also done the right thing in shifting the onus of proving tax avoidance to Revenue, which is an amendment of the budget proposal, and in allowing an independent member to be appointed on the GAAR panel. The facility of seeking advance ruling on GAAR provisions is also a welcome step as investors can plan their moves better. Nicholas de Boursac, The Economic Times: "The Gaar provisions in particular bestow tremendous discretion upon the tax office to reconstruct transactions at later dates and in unpredictable ways. The foreign institutional investor (FII) community believes that the only solution is an unequivocal exemption for cross-border portfolio investments in Indian securities from both the Gaar and the indirect transfer rules. It is clear that these proposed tax laws were written to address certain judicial decisions, but the overly broad nature of the draft provisions casts a wide net that will inadvertently capture non-targeted transactions and market participants. Government leaders have the ability to avoid these unintended consequences by following the international standard of exempting cross-border portfolio investments by FIIs from both Gaar and indirect transfer rules.  Shishir Asthana, Business Standard: "The euphoria over GAAR (General Anti-Avoidance Rule) lasted for exactly 90 minutes in the markets. Immediately after the finance minister announced the deferment of implementation of GAAR by a year, the Sensex shot up by nearly 300 points (intra-day) from a low of 16,652 to 16,944, to close near the day's high on Monday. However, markets have gone back to discount other issues such as poor guidance by Cognizant, European polls and weak US data. This raises the question that was GAAR really as draconian as it was made out to be or was it just its deferment, and not rejection, playing on the minds of investors? While by deferring GAAR, the government has just kicked the issue forward. What is being keenly watched will be the outcome of the committee, which will be giving its recommendation for formulating the rules and guidelines for implementation of the GAAR provisions and to suggest safeguards so that these provisions are not applied indiscriminately. Nitin Shrivastava and Sachin P Mampatta, Daily News & Analysis: "Foreign institutional investors (FIIs) were quite worried on the new taxation rules ever since the same were proposed in the budget. They were net sellers of Indian equities worth Rs. 568.40 crore [56.8 billion rupees] in the month of April after pumping in Rs 44,037 crore [44 billion rupees ] in the first three months of this calendar year. The fact that lack of clarity on Gaar has been a big drag on markets for the last six weeks or so deferring Gaar implementation is unquestionably positive for liquidity and markets in the short term. Also, it sends out positive signs to FIIs that the government listens to corporates and investors," said Saurabh Mukherjea, head of institutional equities at Ambit Capital." Despite the news of Gaar deferment, FIIs net sold shares worth Rs.630 crore [6.3 billion rupees] on Monday, as per provisional exchange data. The Times of India:"Brokers and dealers said that the deferment of GAAR by a year was a temporary relief for Dalal Street and the decision is likely to only smoothen the process of shifting FII investments from Mauritius to Singapore. The tax rule is aimed at bringing those investors under the taxmen's ambit who use aggressive tax avoidance treaties, like one between India and Mauritius, a move that a large number of foreign brokerages and FIIs say could dry up flows into the Indian market from the island nation. Brokers also said that foreign investors would rather look at positive moves concerning the macro factors like fiscal deficit, current account deficit, high rate of inflation and interest rate in the economy. And on Monday, by rolling back some of the budget proposals that could have added to the government's exchequer, the finance minister may even have reduced the chances of higher revenue inflows. For Tuesday, market players expect a flat trade with a negative bias. India Today:"Some amendments may well prove to be a boon for the investor community as they had got spooked with GAAR provisions. An enormous flight of capital has taken place since the budget impacting the rupee and general sentiment adversely. What Pranab babu [Pranab Mukherjee] has done is provide more time to both tax payers and the tax administration to address all issues. The markets reacted positively to the news and the rupee, too, recovered from its early losses. Mr Mukherjee is not putting GAAR in cold storage, he is deferring it, though with amendments. At the same time, he has set up a committee which will bring "greater clarity and certainty" when it hands over its report on May 31 after distillation of ideas with top of the line foreign investors recently. Dinesh Kanabar, Deputy CEO and Chairman Tax, KPMG India: The statement given by the Finance Minister on the floor of the Parliament pushing back the implementation of GAAR provisions by a year is very welcome. The Standing Committee of the Parliament had given several suggestions on the GAAR provisions as they existed in the Direct Taxes Code Bill. These could not be considered by the Finance Minister because suggestions were received just a few days before the introduction of the Finance Bill 2012. A Committee said to consider the GAAR provisions can effectively deliberate on how these provisions can be introduced with minimum degree of subjectivity. The statement of the Finance Minister that the burden of proof will rest with the Revenue is again very welcome. On the other hand, the Government seems to be persistent with the introduction of retrospective amendment for taxation of overseas transfer. The statement made by the Finance Minister that assessments which have attained finality will not be reopened is very interesting. The issue as to whether or not the transaction is taxable has attained finality qua Vodafone having regard to the judgement of the Supreme Court. In that light it remains to be seen as to whether the Chapter would be closed vis-à-vis Vodafone both on the withholding matter as well as the substantive liability on the taxability of the transaction. The Communist Party of India (Marxist): The decision on GAAR "and diluting many of its provisions is a meek surrender to finance capital, MNCs and the US administration," the Communist Party of India-Marxist said. "The US Treasury Secretary had personally lobbied with the Indian finance minister to revoke the GAAR, during the latter's recent US visit in April 2012," it said. GAAR was meant to strengthen India's tax laws to prevent foreign investors from avoiding paying taxes on capital gains in India, using the Double Taxation Avoidance Agreements (DTAAs) with tax havens like Mauritius, the CPI-M said. It is noteworthy that over 40 percent of FDI inflows into India are routed through Mauritius, in order to facilitate crores of rupees of tax savings by foreign companies at the cost of the Indian exchequer. GAAR have been implemented in countries across the world to crack down on such tax avoidance, including in developing countries like South Africa and China in recent times. "Dilution of the GAAR in India would lead to the loss of thousands of crores of tax revenues for the government," a CPI-M statement said. It said other "retrograde announcements" by Mukherjee included the cut in capital gains tax on private equity, cut in withholding tax on foreign borrowings and withdrawal of tax on property transactions. These are all meant to favour big financiers and real estate players. The government's excuses on lack of resources to fund subsidies and social welfare scheme ring hollow in the face of such tax largesse for the big businesses.