Some relief on retro tax

FM clar­i­fies firms free to use ar­bi­tra­tion win­dow

The Financial Express - - COMPANIES -

Finance min­is­ter Arun Jait­ley’s clar­i­fi­ca­tion on Sun­day that the re­cent no­tices sent to com­pa­nies fight­ing the levy of ret­ro­spec­tive taxes were more in the na­ture of fol­low­ing rou­tine pro­ce­dures, is re­as­sur­ing though it is un­likely to com­pletely dis­pel in­vestors’ fears. The min­is­ter ex­plained that the no­tices—one to Cairn En­ergy and the other to the Voda­fone Group—were ‘pre-ex­ist­ing as­sess­ment or­ders’ and, there­fore, needed to be dis­patched so as to pre-empt ques­tions be­ing raised by the CAG or the CBI. Be that as it may, for com­pa­nies to be con­vinced the gov­ern­ment isn’t up­ping the ante, even while at least one of the cases is un­der ar­bi­tra­tion, it must de­sist from any ac­tion such as seiz­ing a firm’s as­sets, even if it risks be­ing ad­mon­ished by the CAG or CBI. The no­tice to Voda­fone Group in mid-Fe­bru­ary said the the UK-based MNC must cough up R14,200 crore or its as­sets may be seized. While the finance min­is­ter may want to sound re­as­sur­ing, multi­na­tional cor­po­ra­tions will re­main un­set­tled by the gov­ern­ment’s some­what in­con­sis­tent ap­proach on tax mat­ters; that MNCs are dis­com­fited by this was ev­i­dent from a state­ment from Voda­fone, fol­low­ing the tax no­tice re­ceived by it, which said it ‘seems a com­plete dis­con­nect be­tween the gov­ern­ment and the tax depart­ment’ in a week when prime min­is­ter Naren­dra Modi was pro­mot­ing a tax-friendly en­vi­ron­ment for for­eign in­vestors.

The gov­ern­ment may be re­luc­tant to re­verse the ret­ro­spec­tive tax­a­tion statute since it has al­ready been passed in Par­lia­ment, for fear it will be la­belled a suit- boot ki sarkar. But even oth­er­wise, its ap­proach can hardly be de­scribed as in­vestor-friendly; not so long ago, the finance min­istry wanted to levy a MAT ret­ro­spec­tively on for­eign port­fo­lio in­vestors, and it was only af­ter the AP Shah com­mit­tee recommeded oth­er­wise that it pulled back. The gov­ern­ment has now pro­posed a one-time set­tle­ment to re­solve ret­ro­spec­tive tax cases—com­pa­nies need to pay only the prin­ci­pal tax and can get a waiver on in­ter­est or any penal­ties—that opens on June 1. Jait­ley said on Sun­day that the gov­ern­ment would not ‘co­erce’ any com­pany to do so. The min­is­ter also men­tioned other schemes to re­solve var­i­ous kinds of tax cases, an ap­proach that is wel­come since pro­longed lit­i­ga­tion helps nei­ther the as­sessee nor the tax au­thor­i­ties. How­ever, where large cor­po­ra­tions are con­cerned, the gov­ern­ment must play fair. And it must back off if it can like it did by not con­test­ing the judge­ments on the Voda­fone and Shell trans­fer pric­ing cases in the Bom­bay High Court.

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