The government’s expected decision to withdraw the conciliation offer to British telecom company Vodafone on its seven-year-old tax dispute could have wider implications on corporate deals across a range of sectors covering telecommunications, pharmaceuticals and oil and gas, experts have cautioned.
The government’s conciliation talks with Vodafone on a tax dispute involving its acquisition of Hutchison’s mobile assets in India in 2007 appear to have broken down. The government is now believed to be preparing to seek approvals for collecting taxes up to Rs 20,000 crore including interests and penalties.
For Vodafone, the developments have forced them to rethink on two strategies — its plans to acquire the assets of Tata Teleservices and the pace of bidding at the ongoing 2G auction.
“Certainly the scope of circle we want to bid will be reassessed,” Vodafone sources said.
Vodafone’s ongoing negotiations to acquire TTSL could be hit by the latest turn of events, said NK Goyal, a telecom analyst.
The turn of events could also hurt India’s image as an investment destination. “Many investors were looking closely at the case, it will make them hold their India plans,” said Kunal Bajaj, independent telecom consultant.
“Now some other companies too could face a retrospective tax,” said Punit Shah, co-head, tax unit at KPMG India, an audit firm.
“It is not sending positive signs,” said Dhanendra Kumar, former chairman, Competition Commission of India.
However, BK Syngal, former VSNL chairman, said: “Vodafone had indicated the tax liability in its account, so they were prepared for it... It is important to follow the law of the land.”