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NEW DELHI: Finance minister P Chidambaram has ordered a review of tax provisions that have a retrospective effect, a move which is expected to bring relief to telecom operator Vodafone and help regain investor confidence.
"I have also directed a review of the provisions to find fair and reasonable solutions to pending as well as likely disputes between the tax department and the assessees concerned," Chidambaram said on Monday, in his first formal interaction with reporters after returning to the finance ministry.
The retrospective tax changes introduced in the 2012-13 budget had drawn sharp criticism from across the globe and scared investors. Along with the General Anti-Avoidance Rules (GAAR) on tax avoidance, another controversial element of Pranab Mukherjee's budget, it had rattled investors. The twin steps created a sharp divide within the government, with a strong school identifying it as key factors which forced investors to keep their India plans on hold.
The decision, aimed at assuaging the concerns of foreign investors, marks a clear repudiation of Mukherjee's legacy in the ministry.
It came a day after finance secretary R S Gujral, who symbolized the Mukherjee dispensation, was divested of the crucial revenue portfolio and pointed to an anxiety to overturn the controversial features that defined the previous finance ministry team.
Chidambaram, who is seen as a staunch pro-reform politician, sought to allay investor concerns, saying the aim of the government's effort would be to remove the perceived difficulties of "doing business in India", including fears about undue regulatory burden or regulatory over-reach. "Clarity in tax laws, a stable tax regime, a non-adversarial tax administration, a fair mechanism for dispute resolution and an independent judiciary will provide great assurance to insurance," Chidambaram said, adding, "The key to restart the growth engine is to attract more investment, both from domestic and foreign investors. Since investment is an act of faith, we must remove any apprehension or distrust in the minds of investors."
Continuing in the same vein, he said, "I believe that around the world, there is enormous goodwill for India, and most people continue to keep faith with the India growth story. A reassurance on the investment climate, continued flow of remittances and a rise in capital flows-both FDI and FII-will bring stability to the exchange rate. We intend to fine-tune policies and procedures that will facilitate capital flows into India."
The finance minister said the measures that the government announced on Monday as well as other steps which it hopes to unveil in the short term would enable it to raise the level of investment to 38% of gross domestic product that was achieved in 2007-08.
There were already clear signs of a re-think on the "retrospective" tax on Vodafone, with the government avoiding raising a fresh tax demand on the telecom giant. Howls of protest from investors forced it to also put on hold the implementation of GAAR by a year and set up a panel to fine-tune the provisions.
The retrospective tax changes going back to 1962 meant that the British telecom major, which acquired Hutchison Whampoa's 67% stake in an Indian telecom venture in 2007 faced the prospect of paying Rs 13,000 crore in capital gains tax on the acquisition. The tax department had argued that Vodafone should have deducted tax before paying the amount to the Hong Kong-based company. However, the two companies said no liability arose as the transaction took place outside India. The Supreme Court agreed with their contention that the deal was outside the jurisdiction of Indian tax authorities.
But the finance ministry under Mukherjee introduced a "clarificatory amendment" in the Finance Bill, arguing that the demand on Vodafone was part of the fight against black money.
The Times of India on Mobile
"I have also directed a review of the provisions to find fair and reasonable solutions to pending as well as likely disputes between the tax department and the assessees concerned," Chidambaram said on Monday, in his first formal interaction with reporters after returning to the finance ministry.
The retrospective tax changes introduced in the 2012-13 budget had drawn sharp criticism from across the globe and scared investors. Along with the General Anti-Avoidance Rules (GAAR) on tax avoidance, another controversial element of Pranab Mukherjee's budget, it had rattled investors. The twin steps created a sharp divide within the government, with a strong school identifying it as key factors which forced investors to keep their India plans on hold.
The decision, aimed at assuaging the concerns of foreign investors, marks a clear repudiation of Mukherjee's legacy in the ministry.
It came a day after finance secretary R S Gujral, who symbolized the Mukherjee dispensation, was divested of the crucial revenue portfolio and pointed to an anxiety to overturn the controversial features that defined the previous finance ministry team.
Chidambaram, who is seen as a staunch pro-reform politician, sought to allay investor concerns, saying the aim of the government's effort would be to remove the perceived difficulties of "doing business in India", including fears about undue regulatory burden or regulatory over-reach. "Clarity in tax laws, a stable tax regime, a non-adversarial tax administration, a fair mechanism for dispute resolution and an independent judiciary will provide great assurance to insurance," Chidambaram said, adding, "The key to restart the growth engine is to attract more investment, both from domestic and foreign investors. Since investment is an act of faith, we must remove any apprehension or distrust in the minds of investors."
Continuing in the same vein, he said, "I believe that around the world, there is enormous goodwill for India, and most people continue to keep faith with the India growth story. A reassurance on the investment climate, continued flow of remittances and a rise in capital flows-both FDI and FII-will bring stability to the exchange rate. We intend to fine-tune policies and procedures that will facilitate capital flows into India."
The finance minister said the measures that the government announced on Monday as well as other steps which it hopes to unveil in the short term would enable it to raise the level of investment to 38% of gross domestic product that was achieved in 2007-08.
There were already clear signs of a re-think on the "retrospective" tax on Vodafone, with the government avoiding raising a fresh tax demand on the telecom giant. Howls of protest from investors forced it to also put on hold the implementation of GAAR by a year and set up a panel to fine-tune the provisions.
The retrospective tax changes going back to 1962 meant that the British telecom major, which acquired Hutchison Whampoa's 67% stake in an Indian telecom venture in 2007 faced the prospect of paying Rs 13,000 crore in capital gains tax on the acquisition. The tax department had argued that Vodafone should have deducted tax before paying the amount to the Hong Kong-based company. However, the two companies said no liability arose as the transaction took place outside India. The Supreme Court agreed with their contention that the deal was outside the jurisdiction of Indian tax authorities.
But the finance ministry under Mukherjee introduced a "clarificatory amendment" in the Finance Bill, arguing that the demand on Vodafone was part of the fight against black money.
The Times of India on Mobile
