Chidambaram junks Pranab's policy, orders retro tax review

Discussion in 'Economy & Infrastructure' started by Yusuf, Aug 7, 2012.

  1. Yusuf

    Yusuf GUARDIAN Administrator

    Mar 24, 2009
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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
  3. pmaitra

    pmaitra Moderator Moderator

    Mar 10, 2009
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    EST, USA

    Fun stuff!

    It's time they did something similar to the Railway Ministry.
  4. Known_Unknown

    Known_Unknown Devil's Advocate Stars and Ambassadors

    Apr 21, 2009
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    Pranab was indeed a disaster for the Finance Ministry. In fact most of our politicians continue to hold outdated autarkic views on how to run the national economy and they are one of the main hindrances to India's growth.
  5. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

    Nov 16, 2009
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    Chidambaram is fast ! :notbad:

    Vodafone looking to settle tax dispute

    New Delhi: UK-based Vodafone Group Plc will consider settling the ongoing tax dispute with the Indian government if interest and penalties are waived, said Analjit Singh, non-executive chairman, Vodafone India Ltd.

    The tax levy amounts to about Rs.8,000 crore, while interest and penalties make up another Rs.12,000 crore.

    “It’ option. I don’t know if it’s viable,” Singh told news agency PTI after meeting various officials of the tax department in New Delhi on Thursday.
    Vodafonewas willing to discuss the tax issue with the government and did not want to get entangled in any controversy, Singh added.

    “We have made our public position very clear that Vodafone is completely ready to discuss the matter,” he said. “Vodafone is not a company...(that is) confrontationist (or) controversial. This is not Vodafone’s business; its business is telecom.”

    Earlier this week, in an interview to Bloomberg, Vodafone group chief financial officer Andy Halford said the company was considering making a provision to cover the legal risks emanating from the tax dispute.

    The UK-based telecom firm said a final decision on this would be taken in November.

    “We have been very clear in saying that no decision on any potential provision will be made until November,” the company said in an emailed statement on 17 September that reiterated Halford’s comments.

    A spokesperson for the UK firm didn’t respond to a late evening email seeking comment on Singh’s statement.

    In January, India’s top court ruled in favour of Vodafone in its case against the government over a demand for taxes stemming from the telco’s 2007 acquisition of Hutchison Whampoa Ltd’s Indian operations. In response, the Indian government amended a law retrospectively to tax cross-border transactions from 1 April 1962. The government, however, ordered the review a few days after Chidambaram took charge in August.

    Halford said on 14 September that the company will pursue international arbitration if it’s found liable for the taxes even as the Indian government started making more conciliatory comments.

    After P. Chidambaramwas reappointed finance minister in August, India softened its stance by asking a committee headed by Parthasarathi Shome to look into the retrospective amendments with regard to indirect transfers.

    The government also has the option to waive the penalty and interest applicable to cases that will come under the tax net due to the retrospective amendments. Chidambaram said a few days after taking office that the tax department would not act rashly in the Vodafone case.

    “Since the retrospective amendments are now a law, Vodafone will have to pay the taxes, unless the Supreme Court strikes down the amendment or the government decides to introduce changes in the law,” B.M. Singh, a former chairman of the Central Board of Direct Taxes, told Mint earlier this week.

    “But the government does have the option of waiving the interest and penalty on all cases affected by the retrospective amendments by issuing a circular,” he said. “Even the Shome committee can only make recommendations. The government will have to go to Parliament to make changes to the Income-Tax Act.”

    How the dispute ends will be determined by the Shome committee’s recommendations that will be announced by the end of this month. The retrospective amendment was announced by former finance minister Pranab Mukherjeein this year’s budget speech.

    Paying tax is a viable option: Vodafone - Livemint
  6. Iamanidiot

    Iamanidiot Elite Member Elite Member

    Dec 21, 2009
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    NRJ on the other hand Pranab is losses off to be the fall guy.Reliable birdie telling me Ambanis are being distanced from Congress
  7. Ray

    Ray The Chairman Defence Professionals Moderator

    Apr 17, 2009
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    Nice words.

    But in practice what are the plans?

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