Budget 2012: Retrospective change in tax law to impact investments

NEW DELHI: India Inc has cautioned that the retrospective change in law allowing authorities to tax cross-border transactions in which underlying asset is located in India is retrograde and will impact foreign investments but the government has remained firm, refusing to buckle under pressure.

"Let me at the outset say, we have only sought to make the intention of legislation clear," finance secretary R S Gujral said at post-budget interaction with industry chambers CII, Ficci and Assocham.

Representatives from all industry chambers strongly came out against retrospective amendments, saying such measures created uncertainty for the industry and sent out negative signals about India as an investment destination and urged the finance minister to have a relook at the provision. The issue emerged as a dominant theme with industry leaders criticising the retrospective change.

"Regardless of however compelling the reasons, retrospective amendments in laws, which have stood the test of legality, do little for confidence building and are a dampener for investors both foreign and local," said R V Kanoria, president, Ficci. But, the government is unfazed and defended the amendment vehemently.

"If it was an issue of double taxation and certain companies were being adversely impacted then government would help them. This (Vodafone- Hutch) is a no-tax implication deal taxation anywhere in the world," Gujral said.

The finance minister said the amendment may have been done from retrospective basis but income-tax authorities could not reopen any tax case beyond six years as per law and this would prevail.

The Supreme Court had on January 20 allowed Vodafone's appeal and quashed the Bombay High Court verdict which had upheld the tax authorities' decision to levy tax on the $11-billion transaction.

Vodafone had appealed to the apex court against the 2008 high court verdict, arguing that the income-tax authorities could not impose taxes because the transaction took place in Cayman Islands and both buyer and seller were foreign.