Government set to nullify controversial retrospective tax law
The Indian government has moved toward redacting the controversial retrospective tax law, introduced in 2012 and said to have hindered the country's prospects of foreign investment. Finance and Corporate Affairs Minister Nirmala Sitharaman introduced the Taxation Laws (Amendment) Bill in the Lok Sabha on Thursday to initiate that process. The withdrawal of the infamous law will rid India of several legal cases.
What were the provisions of the law?
In 2012, the Indian government, led by then Prime Minister Manmohan Singh, changed tax laws retrospectively. International companies that had acquired assets of Indian firms before May that year, were told to pay huge amounts of money. In 2014, the currently ruling Bharatiya Janata Party (BJP) came to power and thereafter pursued most of the cases filed regarding this law.
What does the fresh proposal mean?
Now, according to the proposed amendments, any tax claim made on transactions that took place before May 2012 would be dropped. Any taxes already collected in this regard shall be refunded, but without interest. For companies to be eligible for these changes, they are required to drop all pending cases against the government and promise not to make any demands for damages/costs.
'Such laws damage India's reputation'
"It is argued that such retrospective amendments militate against the principle of tax certainty and damage India's reputation as an attractive destination," the Bill read. "In the past few years, major reforms have been initiated in the financial and infrastructure sector which has created a positive environment for investment in the country," it further added.
Bill impacts cases involving disputes worth billions
The new Bill impacts India's cases with several foreign companies, including Vodafone Group and Cairn Energy Plc. Both the companies have, in the past, earned international arbitrations against taxes imposed on them by India. Just last month, a French tribunal reportedly ordered a freeze on some 20 properties linked to the Indian government, in a big win for Cairn Energy.
Businesses, experts welcome the move
Businesses and legal experts have welcomed the move to retract old taxes by the Indian government. Deloitte India's Rohinton Sidhwa called it a "bold move that addresses the concerns of many foreign investors." It "puts to an end many of the past arbitration cases pending, which have created great embarrassment for India in international circles," he added.
