Tax notice on Vodafone shows disconnect within govt

  • HT Correspondent, Hindustan Times, New Delhi
  • Updated: Feb 17, 2016 14:39 IST
Vodafone’s repeated run-ins with the taxman have again stoked fears about the country’s high-handedness in dealing with foreign investors. (REUTERS)

The income tax (I-T) department’s “pay-up or we seize your assets” kind of a notice to British telecom giant Vodafone have raised questions on whether the NDA government’s top functionaries and the bureaucracy are speaking in opposing languages.

Only last month Prime Minister Narendra Modi had assured foreign investors that India’s controversial retrospective tax that had unnerved businesses at home and abroad was “a thing of the past”—a measure that would not be reintroduced by his or any other government.

The assurance came as on the first day of French President Francois Hollande’s visit to India.

“Many business representatives here raised the importance of a stable business environment and a predictable taxation system,” Modi said in his address to the meeting where Hollande, the chief guest at the 67th Republic Day celebrations, was also present.

“We are working in this direction... Please believe that the retrospective tax is a thing of the past. Now that chapter will not ever be opened in India. It will not be opened by this government or by any other government that comes to power. We will put in place such systems I assure you,” Modi had said.

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Barely a week later the I-T department again asked the Vodafone Group Plc to pay Rs 14,300 crore in tax dues and threatened to seize assets in case of non-payment, potentially derailing the goodwill generated by Prime Minister Narendra Modi’s promises of an investor-friendly environment.

The department says the tax is due on Vodafone International Holdings BV’s $11 billion acquisition of Hutchison Whampoa’s India telecom business in 2007. Vodafone India has argued that no tax was due as the transaction was conducted offshore. But the tax department’s contention is that capital gains were made on assets in India.

The dispute is currently under international arbitration. “We can confirm that we have received a tax reminder from the tax department that also references asset seizures in the event of non-payment,” a Vodafone spokesperson said in a statement.

“The Indian government stated in 2014 that existing tax disputes, including ours, would be resolved through existing judicial process. In a week when Prime Minister Modi is promoting a tax-friendly environment for foreign investors, this seems a complete disconnect between government and the tax department,” the Vodafone statement said.

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Vodafone’s repeated run-ins with the taxman have again stoked fears about the country’s high-handedness in dealing with foreign investors. In 2012, India changed laws to impose taxes on older corporate deals such as Vodafone’s acquisition of Hutchison Whampoa’s telecom assets in India.

Vodafone is fighting two cases in India. The first one involves a Rs 11,200 crore tax dispute that relates to 67% stake in Hutchison Essar it purchased for $11.1 billion in 2007 (about Rs 43,000 crore then) from the Hong Kong-based Hutchison Whampoa’s Indian arm.

The second relates to the I-T department imposing tax on Rs 8,500 crore income of Vodafone India Services Pvt Ltd involving a transfer pricing case of 2007-08. The government has decided not to pursue international arbitration in this case.

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