NewDelhi: The Centre has taken the first step towards doing away with the retrospective tax law, which so far was used for raising large tax demands on foreign investors like Vodafone and Cairn Energy. The contentious law was blamed for vitiating India’s investment climate. The development comes less than a month after Cairn Energy secured an order from a French court to freeze India’s assets in Paris.
To this effect, Union Finance and Corporate Affairs Minister Nirmala Sitharaman introduced the Taxation Laws (Amendment) Bill on 5 August 2021 in the Lok Sabha, aimed to nullify the retrospective tax clauses which were introduced in 2012 for bringing past indirect transfer of Indian assets under the ambit of taxation.
Govt introduces bill to nullify contentious retrospective taxation
Under the proposed changes, any tax demand made on transactions done before May 2012 shall be withdrawn. Besides this, any collections made to this effect shall be reimbursed, albeit without any interest. To qualify for the relaxations offered, the concerned taxpayers shall have to drop all pending cases against the government. Also, they shall have to promise not to make any demands for damages or costs.
Retrospective taxation power was introduced by the former Finance Minister of India, late Pranab Mukherjee after the Supreme Court had held that Vodafone cannot be taxed for a USD 11 billion transaction made in 2007, involving the purchase of a 67% stake in Hutchison Whampoa. The tax provision was later invoked against Cairn Energy for a corporate reorganization done in 2006-07, following which its assets were frozen by the authorities.
The move is likely to come as a relief to companies like Cairn Energy and Vodafone, and end their long-standing dispute with the Indian government.
Notably, after Prime Minister Narendra Modi’s ascent to power in 2014, several stakeholders had urged the newly-installed government to repeal the retrospective tax, following which the then Finance Minister, Arun Jaitley had assured that the provision would only be used to pursue pending assessments. However, the NDA govt took seven years to repeal this law.
