Govt said to tell Vodafone it's ready for tax settlement talks

India has written to Vodafone Group Plc saying it’s ready for talks to settle a $2.2-billion tax dispute, a finance ministry official with direct knowledge of the matter said, bringing a resolution of the clash closer.

The government replied yesterday to a letter from the company seeking an amicable settlement, the official said, asking not to be named as the information isn’t public. The administration might seek to waive interest and penalties on levies, such as in Vodafone’s case, arising from changes to tax laws applied retroactively, another official said, asking not to be identified as he wasn’t authorised to speak to the media.

India’s recent push to lure foreign investment to revive an economy facing budget and trade deficits has been hurt by the spat with the second-largest global mobile phone operator, amid concern the nation’s tax laws have become more hostile. The company said January 6 that no tax was payable after the authorities sent a reminder about the liability, which arises from the 2007 purchase of Hutchison Whampoa Ltd.’s Indian assets.

Whether a waiver of interest and penalty charges is a way to settle the argument between Asia’s No 3 economy and the Newbury, England-based business depends on Vodafone’s response to such a proposal, according to one of the officials. Vodafone has “said all along” that it wants to reach an amicable settlement with the Indian government, Ben Padovan, a spokesman, said on Friday.

The Supreme Court ruled in January last year that the operator wasn’t liable and dismissed the government’s case. Former Finance Minister Pranab Mukherjee amended the tax law in March 2012’s budget to revive the claim.

Rare cases
Vodafone’s chief financial officer Andy Halford had told analysts in November the company had decided against making a tax provision for the potential bill. An expert panel set up by Prime Minister Manmohan Singh said in October that India should refrain from applying changes to tax laws retroactively, except in rare cases. If the government still opts to levy such charges, the seller making the gains should be liable, it said. Finance Minister Palaniappan Chidambaram, who is due to deliver the annual budget next month, has pledged to contain the fiscal gap as he tries to boost confidence in India’s outlook. He is planning a tour of Asia and Europe aimed at wooing investors, four people with knowledge of the matter have said. The economy might expand as little as 5.7 per cent in the year through March, the weakest pace in a decade, according to his ministry.

US trade and lobby groups have criticised the retrospectively applied amendments, saying they may lead to levies going as far back as 50 years and deter investment from overseas. UK Chancellor of the Exchequer George Osborne has said the changes could damage India’s investment climate.