Montek calls for harmonisation of tax laws across countries

[1]

Calling for harmonisation of tax laws across national boundaries, Planning Commission Deputy chairman Montek Singh Ahluwalia on Friday said India should also take steps to bring rules in line with best global practices to make climate more conducive for foreign investment.

Addressing the International Tax Conference here organised by the International Fiscal Association (India Branch), Ahluwalia said that cross jurisdictional divergences and differences of interpretation of tax laws give rise to issues like the Vodafone taxation matter.

"Every country's tax laws should meet international harmonisation. "We do need a much better understanding both among professionals and the government that although a complete harmonisation may be not possible but nevertheless it is an important thing that we need to do so that foreign investors looking at India find that the tax regime on the whole in conducive to investment," Ahluwalia said.

He said a harmonised and globally compatible tax regime would act as an incentive to Indian firms to invest more in the domestic economy rather than look for economies where the tax rates are comparatively lower.

Ahluwalia said that while framing laws on taxation, the government and subject experts should ensure that the rules are simple and should help in achieving the objective of economic development.

"Besides, the enforcement mechanism should also be transparent and the tax laws should not add to distortions," he said.

He said that in a globalised world where most of the countries follow the free market regime, different jurisdictions have their own interpretation of whom to tax and whether taxation should be on the basis of source of income or residency.

Ahluwalia said the issues like the Vodafone affair, where the telecom giant was initially asked by the income tax authorities to pay Rs 11,000 crore for acquiring a stake in Hutchison Essar and which was subsequently stuck down by the Supreme Court, arise due to lack of alignment in laws across jurisdictions.

"Tax experts should discuss the feasibility of aligning the Indian system with IFRS (International Financial Reporting Standards)," the Plan panel deputy chief said.