New Delhi today remained firm on its decision to amend the Income Tax Act retrospectively from 1962, even as the United Kingdom categorically conveyed to India that its proposed move would hurt the overall investment climate in the country.
“We are concerned about the proposed Budget measure... Not just because of its impact on one company, Vodafone, but because we think it might damage the overall climate for investment in India,” the UK’s chancellor of the exchequer, George Osborne, told reporters after his meeting with finance minister Pranab Mukherjee.
Officials said Osborne told Mukherjee UK investors were anxious as India proposed to amend the tax law even, as the Supreme Court had turned down a Rs 11,000-crore tax notice on Vodafone. Later, the apex court had also rejected a review petition filed by the ministry.
Mukherjee, however, said retrospective amendments to tax laws were not unique to India, those in the know told Business Standard. Retrospective amendments were made worldwide and, in fact, a day before he presented the Budget on March 16, the UK had made such changes itself, he said.
The UK recently changed rules to end a scheme used by Barclays that resulted in a tax liability of £500 million, Mukherjee is understood to have reminded Osborne.
The development assumes significance in the backdrop of media reports on Prime Minister Manmohan Singh’s assurance to his British counterpart, Gordon Brown, in February 2010. Responding to Brown’s letters expressing concern over the taxation of Vodafone’s purchase of Hutchison Essar, Singh reportedly assured Brown that retrospective taxation was not the norm in India and Vodafone would have “full protection” of the law.
Osborne’s visit to India came a day after a letter of global industry associations warning Prime Minister Manmohan Singh that the proposed amendments had led companies to reconsider investment decisions was widely quoted in the media.
Mukherjee is understood to have told Osborne India could provide certainty of taxes, but not certainty of no taxes. He said retrospective amendments to the Income Tax Act were not Vodafone-specific, officials said. Mukherjee has been saying that India is neither a no-tax country nor a tax haven. Officially, he told reporters, “We had a very fruitful and effective discussion.”
Meanwhile, Vodafone's chief executive Vittorio Colao said retrospective taxation could tarnish India's image as an investment destination in a letter written to Prime Minister Manmohan Singh. However, he also indicated the company had big plans in India, which included an initial public offer. The letter written a few days ago said the $11.2-billion (around Rs 52,000-crore) investment in Hutchison Essar was being given arbitrary and punitive treatment by the country's tax laws.
“A retrospective obligation to withhold tax or retrospective designation of Vodafone as Hutchison's 'agent' for tax purposes would be profoundly unjust. Vodafone cannot withhold tax from a sum paid then,” said the letter.