Multi-national corporations are learnt to be re-evaluating their investments in India following the budget announcement that empowers taxmen to scrutinise even 50-year-old corporate deals, leading international trade bodies have said in a strongly worded letter to the UPA government.Seven leading industry associations from the US, UK, Japan, Hong Kong and Canada cautioned in the letter to Prime Minister Manmohan Singh that "India will lose significant ground as a destination for international investment if it fails to align itself with policy and practice around the world and restore confidence in the relevance of the judiciary."
The associations — Business Roundtable, Canadian Manufacturers and Exporters, Capital Markets Tax Committee of Asia, Confederation of British Industry, Japan Foreign Trade Council Inc, National Foreign Trade Council Inc and the United States Council for International Business — together represent more than 250,000 companies as members including top global corporations.
“Some of our member companies had already begun re-evaluating their investments in India due to increasing levels of controversy and uncertainty regarding taxation in recent years,” said the letter written on Friday, which has also been sent to finance minister Pranab Mukherjee, commerce and industry minister Anand Sharma and law minister Salman Khurshid.
Finance Bill 2012, once voted into law by Parliament, will empower authorities to tax companies for acquiring assets in India even if the deal is concluded overseas, retrospectively from April 1, 1962.
“The sudden and unprecedented move in the bill has undermined confidence in the policies of the government of India toward foreign investment and taxation and has called into question the very rule of law, due process, and fair treatment in India,” the letter said.
The letter came days ahead of the visit of George Osborne, UK’s chancellor of exchequer, who will be in India on Monday. Osborne, who will be accompanied by a high-powered business delegation, will likely raise the matter with finance minister Pranab Mukherjee.
The government’s decision to introduce a retrospective provision in the Income Tax Act is a direct fallout of the recent Supreme Court judgment which ruled that British telecom giant Vodafone wasn’t liable to pay
$2 billion (Rs 11,200 crore) in taxes for a transaction that it inked in 2007 to acquire majority stake in mobile phone operator Hutchison Essar.
The government has maintained that there is no question of reopening old cases. In exceptional cases, where any case has escaped attention of the tax administration, transactions that were made within the past six years may be reopened.