Investors breathe easy, no more retrospective taxation

The fact that the govt decided to come up with an amendment speaks highly of its commitment towards the international investor community

The Finance Minister has introduced a bill in the Parliament today, which intends to overwrite the retrospectivity of the amendment proposed during 2012 in relation to indirect transfer, which had drawn widespread criticism both among the corporate as well as in the professional circles across the globe. This amendment is a historic change because not only it clarifies that no further orders shall be passed on a retrospective basis, it also clarifies that even the orders that were passed on retrospective basis against the taxpayers in the past, would be invalidated. Thus, Finance Minister Nirmala Sitharaman has gone one step ahead, as compared to her predecessor Arun Jaitley who had left those orders to be decided as per the applicable laws, to negate and nullify the orders already passed by the Government.

This brings out some basic clarity about the manner in which the Government is approaching the issue:

a) This shows the commitment of the Government towards foreign investors, which clarifies that India will always welcome foreign investment and will try its best to ensure that no foreign investor is unduly harassed or asked to pay taxes that are not due.

b) It also shows the inherent belief and strength of the Government that it is willing to take strong positions even if it is against the interest of the Government so long as such decision is not against its stated position and is for the public good.

c) This also highlights the sentiment of the present government because they had bitterly criticised their predecessor and had also coined the term “tax terrorism” against them.

d) The timing of this amendment is very crucial because it comes almost immediately after India lost a couple of cases before an international arbitration tribunal on this point, which will now have to be negated.

While this may also be seen as a climbdown by the government after losing the cases in the international investment arbitrations, the fact that the Government decided to come up with an amendment to make it abundantly clear that no taxpayer shall be asked to pay tax on a retrospective basis, speaks highly of the Government’s commitment towards the international investor community. This is definitely going to showcase India in more positive light and provide an impetus to its popularity in the international foreign investor community. This will also erase time consuming and least revenue yielding litigation for the Government and may actually provide a significantly positive reward to it from the investors. 

The author is Partner & Head - Taxation, Cyril Amarchand Mangaldas.