It is not too often that corporates, whether in India or overseas, come out with strong statements against governments of the jurisdictions they are working in, so it was quite unusual to see Vodafone Plc say – after receiving a tax notice threatening to seize its assets if it did not pay up – “in a week when Prime Minister Modi is promoting a tax-friendly environment for foreign investors – this seems a complete disconnect between government and the tax department”. What is shocking is that this action, that the revenue secretary tweeted to say was a “routine exercise of sending collection notice to all those whose dues are not stayed by any court”, comes after Vodafone Plc and the Government of India are supposedly settling their case in an international arbitration court. The revenue secretary is, of course, right when he says that Vodafone can appeal for a stay on the order to the assessing officer, or approach the next higher authority – including, presumably, the courts – but what is the point of the arbitration if Vodafone has to keep jumping through hoops again?
The action is, more important, wrong at many levels and makes a mockery of the panel the finance minister has set up, or should have set up, to deal with special cases – indeed, a panel is even to be set up to examine the implications of any new tax before it is introduced, but that is in the future. When Arun Jaitley said, in his first budget, that he would not repeal the retrospective tax – this was, in our view, a big mistake – but would allow the existing cases to be settled by various courts, this included arbitration courts since this is where companies like Vodafone and Cairn were headed towards. Also, there is no provision in the arbitration procedures that allow the taxman to attach assets if a payment is not made while it is still going on. Also, as this newspaper has repeatedly argued, the problem with arbitration is that, despite what Jaitley said, even at the arbitration court, the government’s stance remains that tax matters cannot be subject to arbitration. Also, given that an arbitration award needs to be enforced by Indian courts, the government should have said that the award would be automatically enforced – the case of the Australian White Industries comes to mind immediately where, after the award against the public sector Coal India in 2002, the case remains in appeal in the Supreme Court; in the more recent arbitration award against ISRO’s arm Antrix, the latter has said it will file a case in the court on the matter.
Given prime minister Narendra Modi’s talk of fixing/removing the retrospective tax – most recently, at a delegation accompanying the French president last month – you would have thought the government would have taken special care in dealing with cases involving retrospective taxation, not leave it to routine exercises by taxmen under pressure to meet budgetary targets. Which is why, when tax relations between India and US had soured to the extent that the US side would not even talk to their Indian counterparts after a series of high-pitched transfer pricing demands, then finance minister P Chidambaram went to the extent of removing the head of the international tax division. Once a new chief was appointed, talks between the two sides resumed, the number of high-pitched transfer pricing orders reduced and, after a period of around two years of discussions – during which a committee was also set up to recommend transfer pricing norms in various sectors – we’re at a situation where, going by minister of state for finance Jayant Sinha’s tweets on Tuesday, 180 cases have been resolved under the Indo-US Mutual Agreement Procedure which involve a dispute of around Rs 5,000 crore; indeed, discussions are also on for extending these to what are called ‘bilateral APAs’ so that the US taxman will give credit for taxes paid in India. It’s odd to see intense cooperation with assessees in one wing of the tax department and such hostility in the other. How the finance ministry will resolve the issue is not clear, but until this tax terror – that the BJP campaigned against in the run-up to the elections – is resolved, it is unlikely investors are going to start trusting it.