Vodafone Group Plc is talking to the Indian government about a tax bill on its purchase of a majority stake in the country's third-largest mobile firm, Chief Executive Arun Sarin said on Friday.
Vodafone, the world's second-biggest mobile firm, earlier this year paid $11.1 billion for a controlling stake in Hutchison Essar, since renamed Vodafone Essar, from Hong Kong-based Hutchison Telecom International.
Media reports have said the British company had received a $2 billion capital gains tax bill from the Indian tax department.
"Of course it's a challenge," Sarin told reporters in Mumbai after he attended a board meeting of the Indian unit.
"We are working with the income tax department on it."
"Neither the Essar companies, nor the Vodafone company or Vodafone Essar are party to it. Usually the tax is paid by the seller, and the seller is not any one of the companies represented here," Sarin said.
Vodafone directly owns 52 per cent in Vodafone Essar, and two Indian partners control 15 per cent. India's Essar Group owns the remaining 33 per cent. Sarin is vice chairman of Vodafone Essar.
Sarin said Vodafone Essar had been doing well.
"Things are great. We are looking towards a great future here in India," he said, adding that the company was looking to get more mobile spectrum, which would help it to expand operations.
"Spectrum is the lifeline of our business. That's what we are looking forward to," he said.
Vodafone Essar, which operates in 16 of India's 23 telecom circles or zones and provides services on the dominant GSM platform, had 34.1 million subscribers at the end of August.
It trails market leader Bharti Airtel and Reliance Communications in the world's fastest growing mobile market, where low call rates and network expansion has fuelled subscriber growth.
BPL Mobile Communications, another mobile firm in which the Essar Group has a stake, has applied for licences to operate in 21 more telecom circles. Its operations are currently limited to Mumbai.
"We have a great partnership going with Vodafone. That's all I can say," said Essar Group Vice Chairman Ravi Ruia, who is also the chairman of Vodafone Essar.