Moves on to revisit prickly Budget plans

NEW DELHI: While the Eurozone crisis has been officially held as the main culprit for the Indian economy’s slide, there is widespread recognition in the government that some controversial measures in the last Union Budget have been equally, if not more, responsible for queering the pitch for the economy and sapping the energy of the corporate sector.

What has hit investor sentiment the hardest is the controversial retrospective tax proposal in the Budget, aimed mainly to make Vodafone pay capitals gains tax. Already the move to revisit it has gained momentum, now that finance minister Pranab Mukherjee is set to depart for Rashtrapati Bhavan.

Corporate affairs minister M Veerappa Moily recently wrote to Prime Minister Manmohan Singh drawing his attention to the widespread unease that the retrospective tax changes have created among investors. This letter, as well as other inputs received by the PMO, is likely to become the basis for revisiting the proposal soon.

Moily said that Standard & Poor’s threat of a downgrade was also because of the General Anti-Avoidance Rules (GAAR) proposed in the Budget seeking to secure the disclosure of the source of FII money, leading to unease among them. In this connection, taxmen are likely to be asked to temper their enthusiasm and reorient their approach towards taxpayers. The government has agreed to examine the need for changes in GAAR after the move attracted criticism for placing too much power in the hands of tax officials by placing the onus of proving adherence to tax laws on the taxpayer.

Moily’s views are seen to be reflecting a larger concern in the government and the Congress that a harsh tax regime with officials being given powers reminiscent of the ’70s ‘inspector raj’ needs to be reversed.