Retrospective tax: PMO seeks FinMin clarifications

Within 48 hours after Pranab Mukherjee left North Block, the finance ministry got into action to resolve a controversial taxation issue — retrospective amendments to the Income Tax Act. The Prime Minister’s Office asked the ministry for “some” clarifications on the amendments and the ministry will give those in three to four weeks.

The ministry is also believed to be treading cautiously on the issue of sending an Rs 12,000-crore tax notice to British telecom company Vodafone, after Prime Minister Manmohan Singh yesterday asked the ministry to address tax issues and revive investor sentiment. Though, officially, the ministry denied it was going slow on sending the tax notice.

After meeting his officials on international taxation issues, Finance Secretary R S Gujral said, “All concerns pertaining to tax issues need to be addressed, whether it is retrospective amendment or other tax issues.

Certain things always create some grey areas. If the legislative intent needs to be put appropriately. we will do that. These are not small issues.”

The ministry will also issue a circular to clarify about taxation of foreign institutional investors under Section 9 which pertains to tax on indirect transfer of assets. If a shareholder of an FII investing into India sells his assets, the gains would not be taxed in the hands of FIIs.

Gujral, when asked why the finance ministry had not sent a notice to Vodafone even after the enactment of the Finance Bill, he said such things took time. He denied that the government was now going slow on its tax proposals in the Budget.

Meanwhile, Vodafone’s non-executive chairman Analjit Singh met Planning Commission deputy chairman Montek Singh Ahluwalia today.

After the meeting, Analjit Singh said, “We discussed Vodafone’s business in India and its future plans. We were emphatically assured that we would get a level playing field in future as well. The deputy chairman assured us that we should continue to do our business in India without any problem and continue with our plans to penetrate in rural India. The deputy chairman said that India believes in reforms, FDI." He said the tax issue was not discussed.

The move came a day after the Prime Minister met finance ministry officials and said there were problems on tax front that needed to be addressed. Listing revival of investor sentiment as the top priority of the government, he said capital flows were drying up.

Gujral is learnt to have met PMO officials Thursday morning as well as in the evening after a meeting with his officials. It is believed that he briefed the PMO on the contentious taxation areas and the steps being considered by the ministry to address investors’ concerns.

Earlier in the day Cabinet Secretary Ajit Seth held a meeting of top bureaucrats of key economic ministries to take stock of the economic situation to firm up steps for arresting the slowdown in growth. End