Indian panel suggests postponing tax evasion rules

An Indian government panel has proposed that controversial rules to clamp down on tax evasion should be deferred by three years in a move aimed at reassuring rattled foreign investors. The General Anti-Avoidance Rules (GAAR), introduced in this year's budget, seek to curb tax evasion through tax havens, but have been widely criticised as a money-grabbing exercise by a government battling to curb its budget deficit. "The implementation of GAAR may be deferred by three years on administrative grounds," recommended the panel in its draft report released by the finance ministry on Saturday. The panel, chaired by Parthasarathi Shome, also stressed that GAAR should be used for deterrence rather than to generate revenue. The government had earlier delayed putting GAAR into effect by one year after foreign investors expressed alarm that tax authorities would misuse the new rules to go after companies which had invested through legitimate routes. The government has already said the tax rules will not be imposed retroactively as some foreign investors had feared. The expert panel also said that the government should announce the implementation date for GAAR immediately to reduce uncertainty. India's ability to attract foreign investment is crucial as it urgently needs funds to upgrade dilapidated airports, roads, ports and other infrastructure to ease bottlenecks and spur slowing economic growth. Prime Minister Manmohan Singh -- renowned for initiating the country's economic liberalisation in 1991 -- has admitted tax problems have fuelled a "negative mood" among investors towards India.