Moily asks PM to reconsider retro tax amendment

Business industry has been campaigning against such a move saying it would hurt foreign investment.

Joining the chorus against the retrospective tax amendment, Corporate Affairs Minister Veerappa Moily has asked the Prime Minister to reconsider the move as it would impact foreign investment.

Moily confirmed writing to the Prime Minister urging him to rethink on the amendment proposed in the Budget for 2012-13, but refused to divulge details.

"I don't want to talk about the same thing again and again. It is an old issue," Moily said when asked to confirm media reports about him expressing concern that certain budgetary provisions, especially the provision on retrospective tax amendment would affect foreign investment.

Ever since the Budget proposed to amend the Income Tax Act with retrospective effect to tax Vodafone-type deals, international business and domestic industry have been campaigning against such a move saying it would hurt foreign investment.

Late last month, the issue had come up for discussion during a closed-door meeting of several industry leaders and US Ambassador to India Nancy J Powel.

"They (the US) are concerned about various retrospective amendments, lack of decision-making which will affect FDI into India," CII President Adi Godrej had said after the meeting.

Two international trade bodies, International Chamber of Commerce and the Business and Industry Advisory Committee to the OECD, had sought a review of the government's move, warning that the government's proposal in the Budget for 2012-13 could have adverse implications for the country.

"I think the problem for the future is tax clarity... All investors want tax clarity," HSBC Asia Pacific Country Head India Director Naina Lal Kidwai has said.

However, Finance Minister Pranab Mukherjee has refused to budge, and the Lok Sabha has also approved the Finance Bill, 2012, which seeks to amend the Income Tax Act, 1961.

The Finance Minister has said there was "no other way" but to amend the Income Tax Act with retrospective effect to bring into the net Vodafone-type cross-border deals.

He has also clarified that the amendment to the Income Tax Act would not have any adverse impact on foreign investment in the country.

The amendment also would neutralise the victory secured by Vodafone in the Supreme Court in the Rs 11,000-crore tax dispute case.

The tax pertains to purchase of Hutchison's stake in Hutchison-Essar by Vodafone for $11.2 billion in 2007 through a deal in Cayman Islands. The tax liability of Vodafone, after taking into account the penalty and interest, is estimated at Rs 20,300 crore.