BITING THE BULLET

RETROSPECTIVE TAXATION

- Shwweta Punj

After years of dithering, the Centre has finally done away with the infamous retrospective tax law introduced in 2012 by then finance minister Pranab Mukherjee. This law had been described as a key impediment to doing business in India. Two recent orders by international courts of arbitration that ruled against the Indian government in such cases—relating to Vodafone Plc and Cairn Energy Plc—amplified the outcry from the global investor community against this law and the embarrassment the government faced because of it.

On August 9, Rajya Sabha approved the Taxation Laws (Amendment) Bill, 2021. The decision to finally bite the bullet will help the Centre project India as investor-friendly. This is crucial given how badly the country needs foreign investment to get the economy going again, struggling as it is with low growth, low private investment, and massive job losses resulting from the pandemic.

The retrospective tax law, brought in via an amendment to the Income Tax law, was implemented after the Supreme Court, in January 2012, ruled in favour of Vodafone Plc in a case relating to its acquisition of Hutchison’s India assets in 2007 through a web of intermediate companies. The government had raised a $2 billion (currently over Rs 14,600 crore) tax claim against the British telecom firm. After the Supreme Court verdict, the government amended the Income Tax law, allowing it to tax mergers and acquisitions between foreign companies with a bulk of their assets in India.