Taxes & FDI: Change attitude
It is one of life’s simplest aphorisms that you can’t have the cake and eat it too. If the Government of India’s approach to getting foreign investment is akin to having the cake, its attitude towards trade disputes in which foreign investors emerge victorious as in international arbitration is the equivalent of wanting to eat the cake. The Scottish oil exploration company Cairn Energy has exposed this contradiction in official India’s approach even as it has escalated the process by moving to attach Air India’s properties abroad on the legal premise that the national carrier is India’s alter ego.
A law on retrospective taxation that the previous UPA government passed in 2012 had proved extremely damaging to the country’s reputation as an investment destination. Vodafone hit the arbitration trail to expose India’s income tax claims as arbitrary. The basic approach hasn’t changed despite NDA being in the saddle when losing such claims in arbitration awards. Far from being graceful in defeat and settling, official India has pursued matters legally through appeal and this after having acted in a questionable and predatory manner in the Cairn issue by selling the company’s assets and shares to monetise its claims.
Official India can lay a claim to a sovereign right to its tax laws but this does little for the image of a country desperately seeking foreign investments in industry as they come with considerable job generating qualities while also fulfilling the “make in India” criterion dear to the central government as a policy initiative best serving national interests. At one time, there were as many as 17 claims, stemming from disputes over undelivered incentives, retrospective taxation and payment disputes, with regard to investments under bilateral treaties through which capital flowed into India.
The impression India leaves in potential foreign investors is it is a difficult country to deal with because its track record is not that good in keeping its word and delivering on promises after attracting investments. Only a change in attitude can help correct that and settling Cairn’s $1.2 billion award would be one way to demonstrate that India is keen on facilitating ease of doing business.