Walk the talk

FM's assurances on responsive tax administration welcome

Finance Minister Arun Jaitley deserves credit for acting swiftly to nip in the bud a growing furore over new income-tax (I-T) forms that had been released by his department. The I-T forms had come out at a bad time in terms of perception of change in the finance ministry. They asked for some broad-brush details of expenditure on foreign travel, supposedly in order to aid in the tracking down of black money. Details of foreign bank accounts were also required, as well as all income from abroad. While many have argued that this need not be seen as excessively onerous, it is nevertheless the case that the fear of the Indian taxman is such - for good reason - that a great deal of concern spread very fast. The speed with which Mr Jaitley acted to convey to observers that the forms would be reviewed and simplified is reassuring. It is wise to own up to possible errors, and see if they can be corrected. A blooming controversy has been defused.

Mr Jaitley was, in fact, in Washington, D C, to attend the spring meetings of the International Monetary Fund and the World Bank. Part of an Indian finance minister's duty when in Washington is to make the case for recent government policy being business-friendly. Mr Jaitley's effort was, in part, to assure investors that the 2012 retrospective amendment of tax laws was largely a closed chapter. He firmly insisted that retrospective law-making remained a sovereign right, one that he could not sign away; but added that as the 2012 experience had shown, the costs associated with any such law were so great that no government could afford to repeat it. Such words will be seen as welcome. However, it will not have escaped notice that Mr Jaitley did not make a blanket assurance; nor did he say that ongoing cases under the 2012 retrospective amendment would be withdrawn. Such cases continued to be pressed even after Mr Jaitley's original assurance on retrospective law-making, which is the reason that foreign and domestic investors had taken his words with a pinch of salt.

The finance minister has a bit more spadework to do. For example, the government's stance on tax disputes like that surrounding the transaction between Cairn Energy and Cairn India seems to contradict the spirit, if not the letter of his assertion. In addition, foreign institutional investors - rightly or wrongly - believe that they are now being assessed "restrospectively" for minimum alternate tax. Mr Jaitley must recognise that this is beyond a question of right and wrong, as was the case in the Vodafone retrospective tax case. There, whether or not the government was in the right was irrelevant, because of the real effects of its action on the economy - exactly the point Mr Jaitley made in Washington. The finance minister must now see that exactly the same logic may extend to other government actions. And until there is concrete evidence - some visible signs - of institutional reform to the tax administration, the trust between the private sector and the government is likely to be absent.