x Abu Dhabi, UAEThursday 27 July 2017

India seeking to amend controversial tax rules next month

Indian government is likely to approach parliament next month to water down retrospective tax rules that have damaged investor confidence.

NEW DELHI // The Indian government is likely to approach parliament next month to water down retrospective tax rules that damaged investor confidence, two finance ministry officials said yesterday.

The move that may help settle British-based Vodafone Group's long-running US$2 billion (Dh7.34bn) tax dispute.

Vodafone, the largest overseas corporate investor in India, has repeatedly clashed with Indian authorities over taxes since it bought Hutchison Whampoa's local mobile business in 2007.

The government was heavily criticised by the corporate sector for introducing the tough tax rules last year when India was suffering a sharp economic slowdown and trying to encourage investment.

Palaniappan Chidambaram, the finance minister, has for several months been considering recommendations by a government panel that said past mergers and acquisitions should not be taxed.

Vodafone, the world's biggest mobile operator by revenue, said last week that it had received a reminder from Indian tax authorities on the disputed tax dues, adding it believed that no tax was payable on the deal.

"(The) Finance Minister is likely to approach the parliament next month on the retrospective issue," said a finance ministry official, who asked not to be identified because of the sensitivity of the issue.

He declined to say whether the government was considering a waiver of the entire tax bill or cancelling interest and penalty charges on the original tax demand.

However, the officials said Mr Chidambaram was likely to introduce amendments in the 2013 Finance Bill to revise the amendments that were introduced last year along with the budget.

Pranab Mukherjee, the finance minister at the time, introduced an amendment enabling authorities to make retrospective tax claims on long-concluded corporate deals after the Supreme Court had quashed the government's tax demand on Vodafone.

A committee headed by the finance minister's economic adviser, Parthasarathi Shome, has recommended that past mergers and acquisitions should not be taxed, or the government should waive both interest and penalty.

The officials said Mr Chidambaram was looking at the recommendations to work out a solution to the Vodafone dispute by considering its effect on revenue receipts as well as investor sentiment.

They said the government needed parliament's nod to provide tax relief to the company, as this would also affect tax demands amounting to at least $5.5bn for other such deals.