Amid the government?s move to retrospectively tax Vodafone?s $11.2-billion acquisition of Hutchsion?s 67% stake in Hutch-Essar in 2007 through an amendment in the Income-Tax Act, 1961, the company?s group CEO Vittorio Colao has written a letter to Prime Minister Manmohan Singh seeking his counsel on the issue.
In the two-page letter the group CEO has said that arbitrary and punitive retrospective treatment of one of India?s most prominent long-term investors by the tax authorities could only tarnish the image of India as a destination for inward investment.
Colao, who sent a private letter to Singh on March 26, reminded him of their meeting in June 2010 when the matter was sub judice and Singh had then advised him to have faith in the Indian judicial system.
?You may recall that when I had the honour to call on you in June 2010, I raised with you the dispute Vodafone has had with the Indian tax authorities about taxation of Hutchison?s off-shore capital gains on the transaction in 2007 which brought Vodafone into India. Your advice then ? which we have followed ? was to have faith in the protection of the Indian judicial system,? Colao has written.
He has then narrated the Supreme Court?s verdict on the issue absolving Vodafone of any liability to pay the tax and the subsequent retrospective amendment in the Budget to bring the company under the tax net, expressing how disturbing is the trend.
?Sir, it is unprecedented for such amendment to be used to overturn cases decided in law by the Supreme Court. Further, a retrospective obligation to withhold tax or retrospective designation of Vodafone as Hutchison’s ?agent? for tax purposes would be profoundly unjust. The transaction closed five years ago. Vodafone cannot now withhold tax from a sum paid to Hutchison then, Vodfone has made no capital gain in India, and has yet to remove one rupee from our Indian investments. So the effect would be to require Vodafone to pay enormous sum (R11,000 crore) of someone else’s tax. How can that represent justice?? Colao has asked.
He has further said that Vodafone wants to be and to be seen as a committed long-term investor in India. ?Over the past five years, leaving aside equity transactions with Hutchison and Essar, we have invested R36,000 crore in India, creating 8,600 jobs directly and many more indirectly, including by expanding our network of distributors from 450,000 to 1.25 million. We have paid R25,000 crore in taxes and fees to the Indian exchequer. We have plans to list Vodafone India on the Bombay Stock Exchange. We are delivering investment, competition and growth which serve India’s long-term economic and social objectives,? Colao has said.