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 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