Experts say hard to zoom away from retro tax

Even as fresh notice to Vodafone has brought back fears of retrospective taxation among investors, the government may find it tough to remove the clauses from the statute. Experts say while amending the laws in this regard wouldn't be legally very complex, it would require strong political will. Also, now that there are several cases in various courts, it would make sense for the law to be changed after the disputes are resolved.

"There are a few cases on this issue pending at various stages and if they change the law again, it will have to be with retro effect and cases pending at various stages will suffer," said Neeru Ahuja, Deloitte Haskins & Sells. She, however, added that a formal amendment doesn't matter since Prime Minister Narendra Modi's government has promised a non-adversarial tax regime.

"Besides, as a government or sovereign country, we cannot give up our right to tax anyone. There cannot be a blanket withdrawal," she said. John Hobster, global head, transfer pricing, EY, told Business Standard in an interview a few months ago that international investors were concerned that retro tax still remained in the books. "There are huge concerns of taxpayers - our clients - any time that retrospective legislation is put in anywhere. This is not just an Indian matter. But of course the highest profile and most recent developments related to retrospective taxing measures took place in India," he had said.

BLAST FROM THE PAST

• Even as fresh notice to Vodafone brought back retro tax fears among investors, the government may find it tough to remove it from law
   
• Experts argue that while it may not have any legal complexity, the move will require a strong political will
   
•  Besides the fact that there are cases based on retro tax going on, it would make sense for the change to be made after those are settled

Finance Minister Arun Jaitley said in Washington last year that he cannot override parliamentary sovereignty. "I can't bring a law that says Indian Parliament loses its right to ever enact a law retrospectively. Even if I did that, it would be illegal." Vishal Malhotra, partner - tax, EY said, while it may not be legally difficult to roll back retro tax, it will require strong political will. Moreover, a clarification will have to be issued over the earlier amendment that gave the government power to tax retrospectively, which may not be easy to explain. "The retro provision was introduced by way of a clarification by the then government that they always intended to tax it. So it will probably have to clarify that the last clarification was incorrect, which could be a little complex. Also, it could be politically sensitive," he said.

On February 4, the I-T department issued Vodafone a reminder over its Rs 14,200-crore tax demand and threatened to seize the company's assets in case of non-payment. The government defended the reminder notice as "a routine exercise of sending collection notice to all those whose dues are not stayed by any court." The British telecom major has challenged the tax demand over its acquisition of 67 per cent stake in Hutchison, now called Vodafone India, arguing that no tax was due as the transaction took place offshore.

The Narendra Modi government has promised a predictable, stable and non-adversarial tax regime to investors but hasn't withdrawn the controversial retrospective amendment of the income tax law introduced in 2012 by the then finance minister Pranab Mukherjee, who is now the President of India.

Amit Maheshwari, managing partner, Ashok Maheshwary & Associates, said the Finance Minister should take out the retrospective tax provisions from the statute. "The recent tax demand has made the matters worse and it would be best to close this issue as it has not yielded any revenue till date. I think the reason for still keeping this provision in the statute could be that the government was hoping of some recoveries," he added.