GAAR: Face saving for India

1. Some of the brightest minds in tax and finance will have to find a face-saving solution----->take the sting out of GAAR, while keeping it alive as a significantly less powerful, but nonetheless meaningful rule. 
2. Can't scrap GAAR , though it may be the most sensible thing to do. can't soften the rule too much. 
3. difficult to push changes that make Mauritius more attractive than Singapore in the eyes of foreign investors. Singapore, the world's newest and most sanitised tax haven, will not be amused by any such move, and may demand an equal treatment. 
4. The panel will give its report around end-September. 
5. GAAR is a ploy to tax foreign investors entering India from Mauritius. As the rule reads, GAAR can override the India-Mauritius treaty that spares non-residents from capital gain tax in India, irrespective of whether the gain is short-term or long-term and the securities are listed or unlisted. Article 13 of the treaty - which according to a recent statement by the Mauritius trade minister is sacrosanct - lays down that only Mauritius has the right to tax the capital gains. 
6. Treaty shopping by tax evading investors, they can't junk the treaty. Mauritius has geo-political importance, serves as a base for a predominant amount of foreign direct investment into India, can be a gateway to Africa and a route for outbound investments by corporate India. Its importance is disproportionate to its size and stigma. 
7. if someone can invest using a bank account and a post box, why on earth will he put up an office?); over the years, you fail to modify the treaty, and then finally, in frustration, make a ham-fisted attempt to tax overseas investors. 

What will the new panel say? 

• Deferring GAAR (even deferring it indefinitely); or
• Ring fence existing investments with a grandfathering clause, or 
• Strike a compromise to give enough time to investors to adjust to a new reality. 
• Easiest way ---add a few conditions - similar to the ones in the India-Singapore treaty - that investors need to fulfill to avoid tax. 

One of the conditions in the Singapore treaty is that tax avoidance cannot be the sole motive behind setting up an investment company. It isn't difficult to meet such a condition in Singapore, a vibrant financial centre. But it won't be easy in Mauritius. 

1. Mauritius, ironically, has little to fear. It has every reason to look forward to the turn of events in India ending up boosting its economy. 
2. If foreign institutional investors, private equity investors and multinational companies spend in Mauritius even half of what they spend in Singapore, the island economy is headed for an asset boom.