Investors say there is a lack of clarity over retrospective tax. Why the doublespeak?
We need to put things into perspective. The retrospective amendment relates to indirect transfers under Section 9(1) of the Income Tax Act, like the Vodafone case that is now in arbitration. There are a number of cases and it suits people to mix them up and call it retrospectivity.
One, Vodafone case did not deal with retrospectivity, but with the issue of the subsidiary Indian company issuing shares to the parent company. They got a favourable judgment from the Bombay High Court. Shell comes in the same category and the government decided not to pursue both the cases through a special leave petition. In the July 2014 budget, the finance minister said that there are old cases which are pending in various legal forums and, in those cases, the law would follow its course.
Cairn's is one such case. There were totally 16 cases and notices have been issued in all of them, and assessments have been completed in all except for two medium-sized companies. In Cairn's case, the notice had been issued in January 2014 and, therefore, that is also an old case.
No new cases have been taken up and no proposal has come to the high-level committee, which the finance minister had constituted. And, through the directions of the high-level committee, no new case of retrospective legislation has been taken up, because there are no new cases.
Investors are getting mixed signals from the government. What has been the government's thinking? According to the Base Erosion and Profit Shifting action plan, it is internationally accepted that wherever you do business and wherever you derive value you have to pay tax there, and the FIIs are deriving value by operating in the Indian market. So, they have to pay the tax. Notices have been issued and the course is open for FIIs to pay tax in India and get the credit in their country under the double taxation avoidance agreement.
But the FIIs are crying foul. The latest authority for advanced ruling chaired by a former judge of the Supreme Court ruled that FIIs are liable to pay minimum alternate tax. No amendment has been made on the legal side. If either of the party is aggrieved, they can go to court. Naturally, the government will not go as [the ruling] is in favour of the government. Our officers followed the ruling and issued show cause notices.
The FIIs gave representation to the government expressing their inability. Considering their inability, in the budget of 2015, the FM has amended the law by saying that they will not be liable to pay MAT from this financial year. But, the old cases remain and they are being taken up as per the judicial pronouncement of the advanced ruling.
There is no retrospective action of law. With regard to cases like Vodafone, no new case has come up. All the cases, including Cairn, are old cases where notices have been issued well before the July 2014 budget. Related to FIIs, there is no retrospective taxation. The FIIs are asking for retrospective exemption.
The government's position has been made very clear when the finance minister said that India is not so vulnerable that it has to become a tax haven. The opposite of tax terrorism is not that you become a tax haven. Legitimate taxes have to be paid.
What about Cadbury? I don't wish to discuss individual cases, but the case mentioned by you is a central excise case. The assessing officer has issued a notice saying the company was wrongly availing of exemption. They were given a tax holiday for setting up a unit in Baddi, Himachal Pradesh. The investigating officers have found that there was duty evasion. If there is tax evasion, then penal action has to be taken.
Just because somebody is a domestic or foreign company, we do not discriminate. The company has not directly questioned the decision. It has said that it will seek legal remedy, and that is all right.
How much of the fiscal deficit pressure is fuelling our tax department to pursue tax cases? I think this is not correct. The revised estimate of revenue collection under direct and indirect taxes have been substantially reduced from the budget estimates. The revised estimates from last year have been achieved. This year's targets have also been realistic, which we think will be achieved.
But, does this hurt India's image as it tries to sell projects like Make in India? We trust the media and are confident that they will report the correct position. I am not blaming the media. But, obviously, there are other stakeholders and interested parties who are also talking to the media. If interested parties are putting out information which is not correct, it is our responsibility to clarify the correct legal position.
All serious investors do understand the nuances of every government decision. I have been interacting with several people and serious investors appreciate that there is a point of view. India is not a place where by sloganeering the government will succumb to something, which is not correct. And, the course of judicial remedy is open to the FIIs. So, instead of sloganeering, the right course would be to approach the judicial forum.
This will not dent the pro-industry image of the government, because the ground realities are something different. I am sure the serious investors will recognise the ground reality, which is a strong message of non-adversarial administration, is being spread in the department. We are driving home the point constantly of ease of doing business, providing a stable and enabling role by facilitating business in India.
