Finance Minister P Chidambaram on Monday announced a relook at retrospective amendments to the Income Tax Act, which affected companies such as Vodafone, in a move aimed at bringing back investor confidence in the Indian economy. This is a sharp deviation from the stand taken by his predecessor Pranab Mukherjee, now the President.
In his first statement after he took charge of the finance ministry, Chidambaram promised corrective measures to regain the confidence of all stakeholders, which took a beating after the announcement of General Anti-Avoidance Rules (GAAR) and tax on the indirect transfer of Indian assets by foreign residents, with retrospective effect.
Already, the Prime Minister has appointed a panel to review GAAR and taxes on the information technology sector.
|THE NEW GAME PLAN
- Fiscal correction: Expert panel comprised of 13th Finance Commission Chairman Vijay Kelkar and members Indira Rajaraman and Sanjiv Misra to provide new road map
- Mutual funds: New measures to attract investment
- Welfare of the poor: Poor to be protected from fiscal correction; MGNREGA and other schemes to be merged to deal with drought
- Inflation: Better use of grain stock and more imports
- Stressed sectors: Issues in coal, mining, petroleum, power, road, rail and port sectors to be addressed
“Obviously, where necessary, our policies have to be modified or fine-tuned in order to meet the expectations of different stakeholders… I have also directed a review of tax provisions that have a retrospective effect in order to find fair and reasonable solutions to pending as well as likely disputes between the tax departments and the assesses concerned,” Chidambaram said at a press conference here on Monday.
The UK-based telecom company, Vodafone, which might have to pay a tax of over Rs 12,000 crore if the tax department revalidates its demand notice, has threatened international arbitration over the matter. Going by the minister’s indications, the tax department may not issue the notice now.
“The announcement will restore investors’ confidence. A positive development is also seen in bringing Sumit Bose in the revenue department,” said Uday Ved, partner, KPMG.
Chidambaram made it clear adjustments would be made on revenue as well as expenditure sides to rein in the fiscal deficit, estimated at 5.1 per cent of GDP in the current financial year. Indicating some harsh steps ahead, he asked the people to share the burden of fiscal correction.
To tackle inflation, which was 7.25 per cent in June, the government would take steps to remove supply-side constraints. “We are confident inflation can be moderated in the medium term,” Chidambaram said. He hinted at some monetary easing by the Reserve Bank. Chidambaram identified petroleum, electricity and textiles as stressed sectors and said the Cabinet Committee on Economic Affairs would examine issues affecting sectors such as coal, mining, petroleum, power, road transport, railways and ports.