Little headway in Vodafone tax meet with govt
The tax reminder was sent under the retrospective amendment that overturned the Supreme Court judgment, which had ruled that tax authorities had no jurisdiction to tax the Vodafone-Hutch deal. Vodafone had insisted that it was not liable to pay any tax. The department then sought a meeting with company officials on the issue.
Possible solutions include Vodafone agreeing to pay the tax component of around Rs 7,990 crore, and the department agreeing to waive the penalty and interest components. However, the company may face questions from its shareholders on why it agreed to pay tax on the deal despite an apex court ruling in its favour.
The other option is the investment-hungry government stating in the forthcoming Budget that it will be withdrawing the retrospective amendment provision – on the lines of the reported suggestion by the Shome panel – and ensuring that Vodafone does not have to pay tax. However, the government’s need to reduce the fiscal deficit to avoid a possible downgrade by rating agencies may not allow it to close any route to raise more revenues.
According to tax experts, finance minister P Chidambaram’s statement on Monday on general anti-avoidance rules did not provide clarity on how he intends to define tax policies in Vodafone-type deals involving transfer of underlying Indian assets.
The government is yet to release the final recommendations of the Shome panel on indirect transfers. The Shome panel has reportedly favoured only prospective application of tax law in such cases. It had