The finance ministry today once again tried to allay fears of the industry, saying cases over six years old could not be reopened for tax purposes. India Inc is jittery over the proposed amendment to the Income Tax Act with retrospective effect from 1962, to bring the Vodafone-Hutchison deal and similar transactions under the tax net.
In post-Budget interactions with industry chambers, a key ministry official also sought to know from the industry if it wanted the government to raise excise duty and service tax rates from 12 to 14 per cent, if demands for Rs 35,000-40,000 crore were not to be raised on overseas deals involving Indian assets.
Finance Minister Pranab Mukherjee said, “We are not going to reopen cases from 1962. Please remember this is the legal requirement — when we interpret something and if legislation says this is my intention, it goes back to the date it was originally enacted. But, there is also another provision in the Income Tax Act that says we cannot reopen cases beyond six years. We are not going to reopen cases from 1962.”
He assured the industry there would be no unfair treatment. He clarified a Budget proposal to allow tax authorities to reopen 16-year-old cases from the current limit of six years did not relate to the Vodafone kind of cases. That proposal related to assets held abroad, he said.
Finance Secretary R S Gujral said the government was talking about certainty in tax. “Yes, there is clear certainty that such type of transactions are susceptible to taxation.”
He said on the one hand the industry was saying the increase in excise duty and service tax rates by two percentage points to 12 per cent each would lead to price rise and dampen investment, on the other there was a demand that Vodafone-like cases not be taxed.
"The amount we are collecting from that (increase in service and excise duty rates) is Rs 46,000 crore. The total tax going to be impacted by transactions like this (Vodafone) if not taxed is at least Rs 35,000-40,000 crore. Then, you must rather say these transactions should be subjected to zero tax, and tax rates should be raised to 14 per cent rather than 12 per cent. I don't think this is an intention," he added.
CII chairman B Muthuraman said making changes, seemingly substantive and retrospective in tax laws, would make the investors question India’s governance and legal systems. "This might create an impression of India being an investor-unfriendly country, especially at a time when we need urgent investment," he said. The amendments are important because the Supreme Court had held the Indian income tax department did not have the jurisdiction to levy Rs 11,000-crore tax on the overseas deal between Vodafone International Holdings and Hutchison Group for its assets in Hutch Essar (now known as Vodafone). The government has filed a review petition on the decision.
