Retro tax axed to settle disputes worth billions

New Delhi: A controversial 2012 law to tax companies retrospectively is set to be scrapped by the government in a giant move that will help 15 firms including Vodafone and Cairn. Seen as a huge tax reform, the move is expected to reassure foreign investors.

A new bill that will undo the tax says Cairn, Vodafone and other companies could get a refund of whatever they have paid to the government, without interest. The companies have to meet conditions like dropping litigation and guaranteeing that no damages will be claimed.

Revenue Secretary Tarun Bajaj said that it is “unfair criticism to say that we have done this under pressure because of Air India assets being claimed… this would have been a long battle, but we decided for the best interests (of all) and investors”. The amount to be returned, taken together, will be around Rs. 8000 crore, he added.

The move comes as Vodafone battles a sharp drop in its market cap following billionaire Kumar Mangalam Birla’s stunning letter offering his 27 per cent stake in the debt-hit telecom firm to the government or “any other entity that the government may consider worthy to keep the company operational”. Birla quit the Vodafone board yesterday.

Last year, Cairn and Vodafone filed lawsuits in international courts against the retrospective tax, which India lost. In both judgments, the international arbitration tribunal in The Netherlands ruled that India must not make any more attempts to recover the “tax liability, interest or penalties”. India has appealed against the orders.

From Vodafone, the government demanded Rs. 22,000 crore in taxes after the company’s $11 billion acquisition of Indian mobile assets from Hutchison Whampoa in 2007.

In September, the tribunal ruled that the tax breached an investment treaty between India and the Netherlands and said the government should pay more than Rs. 40 crore to the company as partial compensation for legal costs.

In the dispute with British oil major Cairn Energy, the tribunal ruled in December that India’s demand of $1.2 billion in retrospective tax was “inconsistent” with the UK-India bilateral treaty. The tribunal asked the government to pay $1.2 billion (roughly Rs. 8,800 crore) to the company.

Cairn Energy is now planning to target Indian assets in countries from the US to Singapore to recover the compensation amount.

In May, Cairn sued Air India in a New York court to seize its assets to enforce the $1.2 billion arbitration award it had won.

Last month, a French Court ordered a freeze on at least 20 India-owned properties in France, valued at around Rs. 177 crore, in response to a petition by Cairn on the same lines.

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