Prime Minister Narendra Modi has hinted at the closure of this contentious chapter, but without resolution of high-profile cases Vodafone and Cairn, this can’t happen. Though the government can take any decision with the cabinet’s approval here, it will be better if the I-T Act itself is amended to do away with the 2012 retrospective tax changes.
Whether Vodafone should pay tax related to its 2007 Hutch acquisition or not is a question that died for all practical purposes once Indian tax authorities lost the case in the Supreme Court.
So, whatever happened after that, 2012 retrospective tax amendments, opening of cases like Cairn under these provisions, and Indian government’s reluctance to resolve these cases under the Bilateral Investment Protection and Promotion Agreements, have made things only worse.
Prime Minister Narendra Modi led NDA government has also failed to find a way out despite Bharatiya Janata Party (BJP) promising end of the tax terror and Finance Minister Arun Jaitley indicating resolution of the high-profile cases soon on a number of occasions.
It is true that a number of other tax issues like MAT on FIIs and high-pitched transfer pricing adjustments have been handled successfully, till the time 2012 retrospective amendments are there in the tax statute, the foreign investors can’t be convinced that India has a tax system which is stable and predictable.
PM Modi knows this and that is why his statement on Sunday that the contentious 2012 retrospective tax of the UPA government, which spooked foreign investors’ sentiments, is “a matter of past”, and “a chapter (that) will not be opened again”, holds significance as it has come just ahead of the Budget to be presented next month.
He assured business leaders of France and India in the presence of French President Francois Hollande, of a tax system that will prevail in India over the next 15 years.
“We are ensuring that neither this government nor future governments can open this chapter (Retrospective tax),” PM Modi has said.
To convince the foreign investors of a stable and predictable tax system in the country over the next 5 years, 10 years, 15 years, however, it is equally important to ensure resolution of all retrospective tax cases, including Rs 20,000 crore Vodafone and Rs 10,247 crore Cairn, as a part of this assurance.
At a time when foreign investments can play a crucial role in raising the much-needed investment levels in the country through flagship schemes like Make-in-India, Digital India or Start-up India, FM Jaitley would do well by announcing the measures to close the retrospective tax chapter formally, along with the final plan to reduce the corporate tax rate from 30% to 25% over next four years, that PM Modi has hinted at now.