In a bid to come clear to the investors on adversely impacting tax provisions, finance minister Arun Jaitley reiterated the intentions of the government to use the retrospective tax provisions sparingly.
“The provision relating to indirect transfers in the Income-tax Act, which is a legacy from the previous government, contains several ambiguities. This provision is being suitably cleaned up. Further, concerns regarding the applicability of indirect transfer provisions to dividends paid by foreign companies to their shareholders will be addressed by the Central Board of Direct Taxes through a clarificatory circular. These changes would eliminate the scope for discretionary exercise of power and provide a hassle-free structure to the taxpayers. I reiterate what I had said in the last budget that ordinarily, retrospective tax provisions adversely impact the stability and predictability of the taxation regime and resorting to such provisions shall be avoided,” Jailtley said.
The move comes amid industry’s expectations of a roll-back of the retrospective tax, which continues to be a dampener for the investors.
Retrospective taxation has evoked much criticism from domestic and overseas investors, notably Britain-based telecom major Vodafone. Vodafone was slapped with a R20,000 crore retrospective capital gains tax after it acquired the telecom assets of Indian conglomerate Essar Group via Vodafone Mauritius.
Jaitley in his maiden budget speech July last year had assured that India would not resort to retrospective taxation randomly.
It was in the 2012 budget when the government had come up with two prominent retrospective provisions — one relating to taxation of indirect transfers which continues to plague all purchase and sale transactions with tremendous uncertainty and unnecessary documentation to “protect” against an unclear future tax liability. Both the Shome Committee as well as the Standing Committee on Finance had recommended the need to make this provision prospective and also clarify the meaning of “substantial interest” in Indian assets and “proportionate taxation” thereon.