FM Arun Jaitley: Major tax rows to be resolved soon

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New Delhi | Updated: Sep 19, 2015 1:11 PM

Retrospective cases may be referred to Shah panel, said Arun Jaitley.

Arun Jaitley GST billArun Jaitley said, “today there is no sector of economy which is saying it is being harassed.” (PTI)

Reviving hopes of quick executive resolutions to a slew of vexed tax disputes, including a couple of high-profile ones about to move to arbitration, finance minister Arun Jaitley said on Thursday that these would be settled over the next few days. Referring to a number of tax issues that have recently been tackled (the FII-MAT issue, in particular, which is being resolved in favour of foreign investors), the minister said, “We are trying over the next few days itself so that many (other tax disputes) can be put to sleep either by judicial or executive resolution.”

Analysts have interpreted the minister’s statement to mean that the AP Shah panel, which recently opined that FIIs’ trading income can’t be subjected to the minimum alternate tax (MAT), might be asked to unravel the conundrum of retrospective taxation as well. In an interview to FE recently, Shah had said his committee, with a residual term of eight months, might be asked to tackle other legal issues, including those arising from the 2012 amendment to the Income-Tax Act, which explicitly provided for taxation of past cases of indirect transfer of Indian assets.

“When such issues come before the committee, we will listen to all stakeholders and make a report to the government,” said Shah.

Analysts said even if the panel gives an opinion favourable to taxpayers on the issue of retrospective taxation, the government would still need to amend the I-T Act to implement them.

The government recently appointed an international arbitrator for its dispute with Vodafone on its 2007 acquisition of Hutch Essar.

A decision, however, is yet to be taken on how to proceed on the arbitration notice given by UK’s Cairn Energy over the tax demand on its 2007 internal re-organisation of Indian assets.

While Vodafone’s tax bill, as computed last including interest and penalty, amounts to Rs 14,200 crore, Cairn is facing a Rs 20,494-crore demand as tax and interest. Many other tax disputes relating to indirect transfer of Indian assets are pending in various courts (see chart).

Sources said by “executive resolution of outstanding tax issues”, Jaitely would also have meant administrative steps to resolve transfer pricing disputes, mainly of IT and ITeS companies.  The government can resolve many transfer pricing disputes under the mutual agreement procedure (MAP), in which the competent tax authority in India and its counterpart in the home country of the multinational company involved in the dispute can decide how much of profits from cross-border operations of the company are to be taxed in each country. India is close to settling about 100 more tax disputes related to US companies in this manner.

Even though reforms of indirect taxes through the proposed Goods and Services Tax (GST) is stuck due to political reasons, Jaitley, addressing India Economic Convention jointly organised by India Foundation and International Chamber of Commerce here, said the government was trying to put on track many other reforms such as a Bankruptcy Code for smoother liquidation of sick firms, a dispute resolution mechanism for major contracts, expeditious arbitration procedures and better public procurement laws. Terming recent measures to improve ease of doing business as a “work in progress,” Jaitley said  “today there is no sector of economy which is saying it is being harassed.” But, then the entire regulatory system and other systems have to prepare themselves much faster for this change, he added.


While the global markets were eagerly awaiting the US Federal Reserve’s meeting slated for later in the day, the minister of state for finance Jayant Sinha said India had built “multiple layers of defence” to deal with any adverse impact of possible interest rate hike by the Fed, for first time in almost a decade. “Whether it is the Fed raising rates or whether it is other macro events, the best way to deal with it is to build multiple layers of defence, which we think we have now put in place,” Sinha said.

Jaitley had said earlier “In a situation where there is turmoil almost by the day as far as global markets are concerned, we are trying to make the fundamentals of our own economy a little more sound so that our ability to resist these changes can substantially improve. And once we are able to go on this track, I am quite certain the architecture of growth for India would be settled strong and deep,” he said.

He said the Modi government’s growth architecture was to concentrate first on improving agriculture sector as 55% of India’s population depend on it. An increase in the income of these people would boost rural demand and spur other sectors of the economy. Simultaneously, he said, the government was keen to accelerate the manufacturing and services sector growth to absorb increasing number of workforce from farming.

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