Sunday, 22 April 2012

GAAR Effect

Not just the name but also the intent is fairly inappropriate. The finance secretary said that we are not a banana republic (forced me to think though) where anyone can come, make profit and leave without paying taxes. It beats me somehow why someone would pay taxes if he is not required to pay any under prevailing double taxation treaty. May be out of charity he meant. I believe supreme court found government's argument baffling and gave verdict in favor of a telecom which became the genesis of GAAR.

What I find banana republicesque and somewhat draconian in all this is how government is changing the tax rules with retrospective effect. Is it so that the rule of the game, if government is on one side, can change in past, present and future depending on whichever side they are rubbed?

The correct thing for government to do is to accept its mistake, learn and correct it with immediate effect. There is going to be more damage than benefit from penalizing someone else for your own past mistake. For equity markets, I think the flash crash of last two fridays gave a glimpse of what is in store for nifty going forward.

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