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India changing tax laws for stability, predictability
January, 21st 2016

India is gradually transforming most of its taxation laws for a greater degree of stability and predictability, Finance Minister Arun Jaitley today said, stressing that the proposed Goods and Services Tax (GST) is a major step in this direction.

It has been our effort in India to gradually transform and change most of our taxation laws, put to rest various disputes and issues which have been pending and make sure that the scope of discretions is eliminated and there is a greater degree of stability and predictability as far as taxation laws are concerned," Jaitley said.

In a video message to an inaugural global conference on legal matters being held here on January 21-22, Jaitley noted investors' preference for stability of laws and dislike of uncertainty and assured them that India is "seeking to bring about convergence (of laws) among the states in India too".

One major step needed to increase the ease of doing business, is to reduce inter-state variation and the barriers to inter-state trade," Jaitley told some 500 delegates from 40 countries attending the conference on 'Doing Business Across Asia: Legal Convergence In An Asian Century'.

In several areas, the Indian government has put out a model law encouraging their adoption by the states. "The proposed Goods and Services Tax is a major step in this direction," he said.

The net impact of the GST, once it is put into force, is that there will be a seamless transfer of goods and services across the country.

There will be uniformity in taxation rates, there will be much greater compliance and obviously certainty... it's going to help India's GDP," he said.

The GST Bill has been pending in the Rajya Sabha since the past three sessions. The opposition Congress wants no additional cess and a constitutional cap of 18 per cent on the tax. Although the Central Government has agreed to the first condition and has even agreed to limit the GST, it refuses to put down the cap in the Constitution.

The Central Government, which had initially set a deadline for rolling out the tax as April 1, has been attempting to broker peace and get the Bill passed in the Budget Session, which will begin in the second half of February.

Jaitley, at the same time, pointed out that an artificial or coerced push to convergence can backfire, citing the experience of the banking regulation in the European Union.

"If India despite its massive population and unparalleled diversity has remained strong and united political and economic unit, it is partly because of the freedom given to states to be diverse in their laws and regulations.

Some degree of divergence in practice also allows for experimenting with multiple models," he said.

"The fact that India's central bank did not fully subscribe to the then global consensus of free flows of financial capital, is credited with insulating India from the global financial crisis of 2008.

The fact is that businesses need a level of tolerance for diversity of laws if they are to exploit the opportunities that come from geographical diversification," said Jaitley. Jaitley applauded the launch of Asian Business Law Institute (ABLI) today, whose members are India, China, Australia and Singapore.

I would call upon the Asian Business Law Institute to be attentive to the factors and arguments that may be in favour of retaining diversity. The institute should engage constructively with those holding the opposing points of view especially those who are outside the business community," he said.

A push for convergence, which is seen as driven entirely by the interests of business, may not be socially sustainable. In the long-run, such convergence may not be even in the interest of businesses, he said.

"Hence, I call upon you to seek 'optimal convergence' - a convergence which takes into account the benefits of convergence but recognises that there will always be some need for diversity of laws," he said.

Singapore-based ABLI, which will have more Asian countries as members, aims to be a platform for discussions and conversations on commonly beneficial laws in member countries for businesses and commerce across the region.

 

 
 
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