The income tax (I-T) department’s “pay up or we seize your assets” notice to British telecom giant Vodafone has raised questions on whether the NDA government’s top functionaries and the bureaucracy are speaking in different languages. Only last month Prime Minister Narendra Modi had assured foreign investors that India’s controversial retrospective tax, which 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 future government. The fact that the assurance came on the first day of French President Francois Hollande’s visit to India did help soothe some fevered brows.
But now the I-T department has again asked Vodafone to pay Rs 14,300 crore in tax dues and threatened to seize assets in the case of non-payment, potentially derailing the goodwill generated by Mr 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. Vodafone’s troubles began in 2012, when India changed its laws to impose taxes on older corporate deals such as Vodafone’s acquisition of Hutchison Whampoa’s telecom assets in India. The British firm’s repeated run-ins with the taxman have again stoked fears about the country’s high-handedness in dealing with foreign investors.
In an atmosphere dominated by many known and unknowns, ushering in the promised ‘achche din’ is proving infinitely more complicated than coining the catchy slogan was. That’s because the government often needs to wind its way through a legal labyrinth to deliver on its promise. Foreign investors, both strategic and stock market, have once again shown a penchant for the India story. The tax disputes pertaining to Vodafone and energy major Cairn have become emblematic of some of the trenchant rigidities that have come to characterise the country. India would do well if it gets such policy irritants out of the way to cement its place as a potential epicentre of economic activity in a shaky world.