“Heart of policy is that government believes people should pay tax somewhere”

Even as Finance Minister Pranab Mukherjee faces flak from corporates at home and abroad on his budget proposal to tax Vodafone-type deals through retrospective amendment, World Bank president Robert Zoellick sought to side with the government saying India wanted the company to pay tax at some place.

He also reasoned that investors must give some time to the government to explain the details.

Among other tax proposals aimed at plugging tax evasion, the budget for 2012-13 had proposed amending the relevant provisions in the Income Tax Act with retrospective effect so as to bring capital gains through Vodafone-type merger and acquisition deals under the tax net.

Mr. Zoellick said: “[The] Indian government is sensitive that they want to have an environment that draws both domestic and foreign investments and so I hope investors give the Indian government time ...”

Pointing to his discussions with Finance Minister Pranab Mukherjee and other top government officials on this issue earlier during the day, he said: “Heart of the policy is that they [the government] believe people should pay tax somewhere.” The Indian government's intention, he said, was to bring into the net those companies that take advantage of treaties and tax havens to avoid payment of taxes.

Middle East crisis

On the global economic scenario, he said the crisis in the Middle East was likely to continue and that would tend to push up oil prices.

“The increase in oil prices has certain risk factor on the world economy. This is significantly driven by political and security uncertainties in the Gulf ... All countries will have to be aware that the problem is not going to go away so soon … There will continue to be a point of uncertainty and that is why at the bank we try to help countries deal with that and try to support,” he said.

As for India's economic growth, he noted that both the government's and the World Bank's projections were the same — an expansion of 7 per cent. “India will continue to be a fast-growing economy,” he said, while acknowledging that the government was trying to control its expansionary fiscal policy that was adopted to minimise the impact of the global slowdown in 2008.

The World Bank chief also expressed the multilateral lending agency's willingness to support the BRICS proposal on setting up a development bank with the aim of insulating their economies from the current economic problems, rising oil prices and currency volatility.

However, on the issue of his successor after he demits office in June, Mr. Zoellick stressed that it was important to keep the top job at some international institutions with the United States to get the support of the world's largest economy. “I would just suggest if you want to keep the United States engaged in multilateral organisations, keep openings somewhere ... because the issue is (to) keep the United States supporting some of these organisations,” he said.

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