Mr Shome heads an expert committee set up by Prime Minister Manmohan Singh to address foreign investor concerns on the much-dreaded General Anti-Avoidance Rules (GAAR); it presented a draft report on Saturday recommending, among other things, that India’s tax treaties with Mauritius or Singapore need not be reviewed. Mauritius is the most preferred route for foreign investments because of the liberal taxation regime in the island country, and has a Double Taxation Avoidance Agreement with India.
Mr Shome is the Director and Chief Executive of the Indian Council for Research on International Economic Relations. The Calcutta University graduate, who schooled in Chennai, has also served as the chief economist in the Revenue and Customs Department of the United Kingdom and as an adviser to India’s Finance Minister.
In a long stint with the International Monetary Fund, Mr Shome worked in various capacities, including as the first senior economist in the Office of the Managing Director and the chief of tax policy.
On 16 March, when former Finance Minister Pranab Mukherjee tabled the provisions of GAAR in Parliament as part of the Union Budget 2012-13, his announcement sent the markets and global investors into a tizzy, causing unprecedented panic. Under the original proposal, GAAR was to provide significant power to deny tax benefits to an entity if a transaction was found to be carried out only to avoid taxes. So FIIs not opting for treaty benefits and ready to pay taxes did not fall under the taxable category, but those opting for dual taxation avoidance agreements did.
The Shome committee recommended on Saturday that GAAR, which was to be in force by April 2013, be deferred for three years and capital gains tax be abolished.
In an interview with NDTV, Mr Shome said India needs to honour its tax treaties, and cannot suddenly say: “This is not enough.”
Indian tax authorities are not prepared for the provisions, he said, adding that tax administration in the country has to improve first and investors as well as auditors need to be ready for the rules.
The country has to be competitive in attracting investment to reverse sluggish growth, and needs inflows to balance its capital account, he added without mincing words.
The former Professor of Economics in American University, Washington D.C., who schooled in Chennai, has authored several books and chaired India's Ninth Five Year Plan and Tenth Five Year Plan advisory groups on tax policy and administration.
With master’s degrees from Delhi University and University of Rochester, Mr Shome’s PhD thesis on the burden of the corporation income tax earned him the National Tax Association of America award for "outstanding student of taxation and public finance".
Small wonder then that he is undaunted by India’s tax labyrinth.