Finance minister Arun Jaitley is right when he said that India did not promote “tax terrorism” but was not a “tax haven” either with no escape from genuine dues.
This was an oblique reference to investors who were crying foul over a spurt of notices in the last few days. About 100 foreign funds are reported to have been served with notices to pay taxes over the past years.
This has spooked investors although the government has maintained that the notices were for taxes not paid till March 2015.
The latest issue has cropped up at a time when India is beginning to regain to its image as a foreign investors’ darling from slowing economy prone to risky policy flip-flops.
Ever since assuming office last year, the government has promised to soothe the frayed nerves of investors by putting in place a “non-adversarial and conducive tax environment”, rationalise and simplify the tax regime and “overhaul dispute resolution mechanisms.”
It is also on the brink of bringing on board all states to roll-out a goods and services tax (GST), which when implemented can stitch together a common national market.
In its manifesto, the BJP had stated that the party “realises the importance of having a Tax Policy Roadmap, so that people are aware of the future and plan accordingly,” in an oblique reference to the Rs 11,200-crore tax dispute with Vodafone.
In January 2012, Vodafone won a $2.2-billion tax battle after the Supreme Court ruled that the British group was not liable to pay any taxes under the prevailing laws. The finance ministry then, in the budget for 2012-13, proposed changes in India’s 50-year-old tax laws to impose a retrospective provision for tax on some types of international mergers including Vodafone’s 2007 acquisition of Hutchinson’s mobile assets in India.
Mr Jaitley in the budget for 2015-16 has proposed to scrap the minimum alternate tax (MAT) on capital gains made by foreign institutional investors (FIIs). But, it now appears, FIIs are asking for “retrospective exemption” of MAT, which clearly does not fit into any rule-based system.
The institutional and regulatory environment in India — across a broad spectrum of issues ranging from intellectual property, dispute settlement, capital markets, legal remediation and others — are far more transparent and rule-based than many other emerging economies.
Advocating ironing out kinks in thorny irritants is a healthy practice. ‘Tax terrorism’ and ‘uncertainty’ not only creates anxiety among the business class and negatively impacts the investment climate, but also dents the image of the country. But to ask for exemptions on legitimate tax dues isn’t a fair game.