The market has been doing quite well the past few months, and the hope is that the new government brings out policies, and clears roadblocks that further encourage investment, and in turn encourages FII money in the country, and help the overall economy as well.
With today’s globalized economy, it is no surprise that foreign governments and companies take as much interest in Indian policies as Indian companies themselves take, and one of the issues that has been coming up recently is retrospective taxation.
The most prominent example is the Vodafone case where the tax authorities wanted to charge capital gains on Vodafone’s acquisition of Hutchison Essar; the Supreme Court ruled in favor of Vodafone, and then the Indian government decided to change the laws relating to capital gains taxation accruing from cross border acquisitions where an Indian subsidiary is involved, and make that rule applicable retrospectively from 1962.
Since then Vodafone has decided to take this case to international arbitration as the dispute wasn’t getting resolved by other means.
The Japanese government has also brought up this issue recently with the Financial Express reporting that Japan has asked the current government to drop a $3 billion retrospective tax bill on Mitsubishi and Honda.
Retrospective taxation is a bad idea and I hope the current government abandons the pursuit of tax revenues in this manner. This is changing the rules of the game after the game has long started and is grossly unfair. Imagine the uproar if someone raised the current income tax rate by 5% and made that retrospectively effective from the past 10 years, such a thing would never pass, then why force a foreign corporation to pay such a tax? For people who support the amendment saying it plugged a loophole, I think that is very weak ground – you can certainly plug a loophole for future purposes but it is incredibly unfair to plug a loophole retrospectively especially when that involves working around a Supreme Court judgement.
This is high handed behavior that certainly doesn’t encourage a positive investment environment, and sacrifices good long term policies and economic system for a short term gain to cover the revenue deficit, which it anyway failed to do.
4 thoughts on “Thoughts on retrospective taxation”
Did I read that right? Retrospective from 1962? Bwahaha…
I have an idea, how about tax claims against East India Company? Given the intellectual (in)capabilities of our politicians, they will take it up if someone tells them about this.
Yes, that’s right from 1962 – they might give you a Bharat Ratna on that proposal 🙂
Though I support your views on retrospective amendments, I am certainly can’t accept your views on ‘Vodafone’. If any body sees the facts of the Vodafone,
a) why Vodafone purchased non-asset based companies -which are in tax heaven countries from another tax heaven country?
b) why they have paid such a huge sum? Is not based on the valuation of Indian assets – if ‘Yes’ – why India should not tax it?
c) Why they paid tax on similar charges in Britain and not paying in India?
d) when there are other avenues to get rid off tax liability (in this case it is related to TDS & not related to tax as such) – why they have not taken that secured step & instead of blaming Indian Govt.
…. like that there are many number of questions un-answered by voda & even our Hon’ble SC.. because of some persons in action India should not loose their income.
If they want business certainly they will come to India. If they feel this is not so, why Voda has not left India? Instead they are acquiring more shares and expanding.. so, I feel business impact will be there but it will be very nominal.
But certainly Govt can’t keep relying on retro taxes.. they should be more sophisticated, pro-active.
I think the question we must consider is why did the Supreme Court side with Vodafone and not the GOI and whether or not this appeals to our sense of fairness and how would we ourselves like to be treated in this manner, and that would answer a lot of questions.