Modi Govt Likely to Re­view all ‘Re­gres­sive’ Poli­cies

Is­sues re­gard­ing taxation and lit­i­ga­tion, es­pe­cially in the tele­com sec­tor, could be re­solved on a pri­or­ity ba­sis by new govern­ment; changes to some rules likely in the Budget

The Economic Times - - Companies - GULVEEN AULAKH

The new govern­ment is likely to take a relook at all “re­gres­sive” and “anti-busi­ness” poli­cies that have cre­ated a neg­a­tive sen­ti­ment among for­eign in­vestors, es­pe­cially to­wards the tele­com sec­tor with tax claims against UK’s Voda­fone Group and Nokia be­ing prime ex­am­ples, people aware of BJP’s think­ing said. Is­sues around taxation and lit­i­ga­tion that have cast In­dia in a neg­a­tive light will be taken up by the in­com­ing BJPled govern­ment and re­solved on “pri­or­ity”, these people said. Changes to some rules could be ex­pected in the Budget that the new govern­ment is ex­pected to present some­time in July, one of them said. “The agenda is to change the in­vest­ment cli­mate of In­dia,” this per­son added re­quest­ing anonymity. The Naren­dra Modi-led govern­ment will be sworn in on Mon­day. In­dia’s im­age as an in­vest­ment des­ti­na­tion took a beat­ing when the pre­vi­ous UPA II govern­ment in 2012 changed rules to tax cer­tain M&A deals retroac­tively. This was widely seen as an at­tempt to by­pass a Supreme Court judg­ment ear­lier that year which ruled that Voda­fone, the par­ent com­pany of Voda­fone In­dia, didn’t have to pay cap­i­tal gains tax over its $11 bil­lion deal to buy Hong Kong-based Hutchi­son’s stake in Hutchi­son Es­sar in 2007. In­dia’s tax au­thor­i­ties had de­manded .` 20,000 crore in taxes, in­ter­est and penal­ties from Voda­fone, say­ing it should have with­held the tax while pay­ing Hutchi­son. The Voda­fone Group has since in­voked in­ter­na­tional ar­bi­tra­tion against In­dia af­ter con­cil­ia­tory ef­forts be­tween the two since June 2013 failed. And, it isn’t the only com­pany to do so. Nokia took the first step to­wards in­ter­na­tional ar­bi­tra­tion less than a fort­night ago. In­dian tax au­thor­i­ties have raised a de­mand of more than .` 22,000 crore in what they termed un­paid taxes from Nokia and its sub­sidiaries. Nokia has said that be­sides the tax de­mand, changes to In­dia’s tax reg­u­la­tions had caused “se­ri­ous and sub­stan­tial harm” to its in­vest­ments in In­dia. Be­cause of the tax is­sue, the com­pany had to leave its hand­set man­u­fac­tur­ing plant in Chen­nai out of its global sale of de­vices busi­ness to Mi­crosoft. Modi is widely per­ceived as be­ing busi- ness friendly, given his record of over­see­ing eco­nomic de­vel­op­ment as the chief min­is­ter of Gu­jarat. Stock mar­kets have surged to record highs ever since it be­came clear that Modi will be In­dia’s next PM. Voda­fone chief ex­ec­u­tive Vit­to­rio Co­lao re­cently said that the un­re­solved tax is­sue would be a great op­por­tu­nity for the new govern­ment to “make a state­ment on how open the coun­try is again”, in­di­cat­ing that with a change of guard, the Bri­tish com­pany is open to an out-of-court set­tle­ment of the con­tentious tax is­sue that has mud­died its re­la­tion­ship with In­dia's pol­icy mak­ers for seven years. Mo­ham­mad Chowd­hury, leader-tele­com at PwC In­dia, said ad­dress­ing ret­ro­spec­tive tax is­sues should be a pri­or­ity for the new govern­ment. “It’s not a tele­coms is­sue but it’s an FDI is­sue for In­dia. Ad­dress­ing those early in the ad­min­is­tra­tion will go a long way to­wards restor- ing for­eign in­vestors’ con­fi­dence.” Ac­cord­ing to the people who talked to ET, the new govern­ment may well move away from treat­ing the tele­com in­dus­try as a “cash-cow” and could make it part of crit­i­cal in­fra­struc­ture, en­sur­ing tax ben­e­fits for com­pa­nies. If im­ple­mented, that would grant one of the long-stand­ing de­mands of tower pro­vid­ing arms of mo­bile phone com­pa­nies, which have been clam­our­ing for tax sops and ra­tio­nal levies for the cap­i­tal-in­ten­sive in­dus­try. “The tele­com in­dus­try has been in a bad shape... we need to make sure that people who have in­vested in In­dia get their re­turn on in­vest­ment,” said a per­son close to the BJP lead­er­ship. An­other fo­cus area for the BJP is na­tional broad­band avail­abil­ity, with a tar­get on en­sur­ing dig­i­tal or broad­band con­nec­tiv­ity for all In­di­ans by 2022.

BUSI­NESS FRIENDLY: PM-des­ig­nate Modi

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