The issue of the General Anti Avoidance Rule (GAAR) has dominated the news recently and there are fears that GAAR will discourage foreign investment in India. However, tax avoidance can hinder public finance objectives and it is in this context GAAR was introduced in this year’s Budget. Last week, the Finance Minister pushed back the implementation of GAAR by a year. What is GAAR? GAAR was first introduced in the Direct Taxes Code Bill 2010. The original proposal gave the Commissioner of Income Tax the authority to declare any arrangement or transaction by a taxpayer as ‘impermissible’ if he believed the main purpose of the arrangement was to obtain a tax benefit. The 2012-13 Finance Bill (Bill), that was passed by Parliament yesterday, defines ‘impermissible avoidance arrangements’ as an arrangement that satisfies one of four tests. Under these tests, an agreement would be an ‘impermissible avoidance arrangement’ if it (i) creates rights and obligations not normally created between parties dealing at arm’s length, (ii) results in misuse or abuse of provisions of tax laws, (iii) is carried out in a way not normally employed for bona fide purpose or (iv) lacks commercial substance. As per the Bill, arrangements which lack commercial substance could involve round trip financing, an accommodating party and elements that have the effect of offsetting or cancelling each other. A transaction that disguises the value, location, source, ownership or control of funds would also be deemed to lack commercial substance. The Bill as introduced also presumed that obtaining a tax benefit was the main purpose of an arrangement unless the taxpayer could prove otherwise. Why? GAAR was introduced to address tax avoidance and ensure that those in different tax brackets are taxed the correct amount. In many instances of tax avoidance, arrangements may take place with the sole intention of gaining a tax advantage while complying with the law. This is when the doctrine of ‘substance over form’ may apply. ‘Substance over form’ is where real intention of parties and the purpose of an arrangement is taken into account rather than just the nomenclature of the arrangement. Many countries, like Canada and South Africa, have codified the doctrine of ‘substance over form’ through a GAAR – type ruling. Issues with GAAR A common criticism of GAAR is that it provides discretion and authority to the tax administration which can be misused. The Standing Committee responded to GAAR in their report on the Direct Taxes Code Bill in March, 2012. They suggested that the provisions should ensure that taxpayers entering genuinely valid arrangements are not harassed. They recommended that the onus should be on tax authorities, not the taxpayer, to prove tax avoidance. In addition, the committee suggested an independent body to act as the approving panel to ensure impartiality. They also recommended that the assessing officer be designated in the code to reduce harassment and unwarranted litigation. GAAR Amendments On May 8, 2012 the Finance Minister amended the GAAR provisions following the Standing Committee’s recommendations. The main change was to delay the implementation of GAAR by a year to “provide more time to both taxpayers and the tax administration to address all related issues”. GAAR will now apply on income earned in 2013-14 and thereafter. In addition, the Finance Minister removed the burden upon the taxpayer to prove that the main purpose of an alleged impermissible arrangement was not to obtain tax benefit. These amendments were approved with the passing of the Bill. In his speech, the Finance Minister stated that a Committee had also been formed under the Chairmanship of the Director General of Income Tax. The Committee will suggest rules, guidelines and safeguards for implementation of GAAR. The Committee is expected to submit its recommendations by May 31, 2012 after holding discussions with various stakeholders in the debate.
With the spread of COVID-19, along with the central government, state governments have also announced several policy decisions to contain and prevent the spread of the virus. In this blog post, we summarise some of the key measures taken by the government of West Bengal in this regard as of April 18, 2020.
As of April 18, 2020, there have been 287 confirmed cases of COVID-19 in West Bengal. Of these, 55 have been discharged and 10 have died. To manage patients, there are 66 COVID hospitals, eight testing laboratories, and 582 institutional quarantine centres in the state.
Early response: Leading up to lockdown
Between January and February, the state government's efforts were aimed at raising awareness among citizens on COVID-19. These include advisories on observing precautionary measures, and informing citizens on travel restrictions, home isolation, and screening protocols for foreign returnees.
On March 2, the state government responded to the growing number of suspected cases by issuing guidelines for preparedness by government medical colleges and hospitals. These covered admission, isolation and management of suspected COVID-19 cases. These instructions were extended to private medical colleges and hospitals on March 7. A week later, the government issued protocols for monitoring travellers at various state checkposts by joint teams of state police and paramedical staff, and for reference of symptomatic patients to isolation facilities in the district. All cases had to be reported on a daily basis to district surveillance teams. The government also announced the closure of all educational institutions in the state (government and private) till March 31.
On March 16, the government notified the West Bengal Epidemic Disease COVID-19 Regulations, 2020. These regulations specify screening and treatment protocol for COVID-19 patients, and empower the district administration to take containment measures to curb the spread of COVID-19.
The next day, the state reported its first confirmed case of COVID-19. The government proceeded to issue orders: (i) for segregating isolation wards for suspected and confirmed COVID-19 cases, (ii) specifying treatment protocols for confirmed cases, (iii) establishing medical boards in all COVID-19 hospitals with representation from different medical disciplines, and (iv) establishing fever clinics for suspected patients. Anganwadi centres and creches were also closed, with provisions to ensure supply of two kilograms of rice and potatoes to each beneficiary.
On March 21, the government ordered the closure of certain establishments to restrict non-essential social gatherings till March 31, 2020. This included closure of restaurants, clubs, amusement parks, and museums. Further, all trains entering the state and inter-state buses were banned till March 31, 2020.
Subsequently, the government announced a lockdown. In addition to steps for physical containment, the government also undertook various health and welfare measures. These are detailed below.
Measures taken post-lockdown
On March 22, a lockdown was announced in 23 areas of the state until March 27. Restrictions during the lockdown included: (i) prohibition on public gatherings of over seven people, (ii) suspension of public transport, and (iii) closure of shops, commercial establishments, offices and factories. Establishments providing essential goods and services such as health services, print media, banks, groceries, and e-commerce delivery of food and groceries, were excluded from the restrictions. Over the next few weeks, steps were taken to expand these exemptions, and to regulate the movement of goods and services.
List of essential goods and services: On March 24, the lockdown was extended till March 31 in the entire state, and the exemptions were expanded to include industries producing coal, power, steel, or fertilisers. After the centre notified a 21-day lockdown, the list of exemptions in the state was gradually expanded to include agricultural operations, fish production, tea garden operations, and operations in krishak bazars for marketing agricultural produce. At the same time, restrictions were placed on hoarding of masks and hand sanitisers.
Last week, after the central government extended the lockdown till May 3, orders were passed for resumption of government offices from April 20 onwards at a strength of 25% of workforce. Similar permission was also granted for restricted operations in jute mills, and IT/IT enabled services.
Regulating movement of goods and services: A pass system was introduced on March 25 to regulate the movement of persons supplying essential goods and services. Transportation of non-essential cargo was prohibited till March 31, 2020. However, as a one-time measure, permission was granted on March 26 to such vehicles to reach their destination. Two days later, the government ordered for the seamless movement of commodities in all district borders and interstate areas.
Health Measures
On March 26, a Committee of Experts was constituted to advise on strategies for isolation, quarantine, testing, health infrastructure, and disease prevention. The Committee has been issuing protocols on clinical management of COVID-19 cases. The government also established various monitoring committees on setting up isolation hospitals, managing critical care, and to audit the cause of deaths related to COVID-19 patients.
To respond to the increasing number of patients, the government acquired private healthcare facilities in April. Further, to expand its testing capacity, the government recommended sample pooling for COVID-19 testing yesterday.
In addition to these measures, the government also issued several guidelines, advisories and orders on containment of the virus, patient handling and protecting healthcare workers. Some of these are detailed below:
For healthcare facilities: Advisory for setting up of isolation facilities, orders for establishment of fever clinics to segregate patients with severe symptoms, separation zones for suspected cases to protect healthcare personnel, and use of hydroxychloroquine for asymptomatic healthcare workers.
For government: Guidelines for cluster containment and treatment strategies to contain COVID-19 in hi-risk spots, directions for awareness generation among rural population for containment, and arranging for counselling sessions for quarantined patients.
Welfare/Austerity Measures
Creation of relief fund: The “West Bengal State Emergency Relief Fund” was created on March 23 to mobilise additional resources to cope with the emergency. On April 2, austerity measures were announced by the government. These include prohibition on announcement of new schemes, unless required in urgent public interest.
Distribution of food: Free entitlement of wheat and rice was announced on March 26 to beneficiaries under some food subsidy schemes (including the Antyodaya Anna Yojana) until September, 2020.
Measures for workers: Directions were notified in March for provisions on shelter, food, quarantine, wage payment, and continued tenancy for workers.
Free insurance cover was announced on April 1 for treatment of certain categories of persons, including heathcare workers, and police.
For more information on the spread of COVID-19 and the central and state government response to the pandemic, please see here.
