Even as Finance Minister Pranab Mukherjee has been at pains to reiterate over and over again the economic rationale of his Budget proposal for retrospective amendment of the Income-tax Act relating to overseas merger and acquisition (M&A) deals involving domestic assets, the controversy over the Vodafone tax issue refuses to die down.
As could have been expected, the matter cropped up again during the bilateral meeting between the visiting Chancellor of Exchequer George Osborne and Mr. Mukherjee on Monday.
Drumming up a concerted pressure campaign on the Indian government — first through a March 26 letter by Vodafone Group CEO Vittorio Colao to Prime Minister Manmohan Singh dubbing the retrospective amendment move as “arbitrary and punitive treatment” to the U.K. telecom major and following it up with a similar missive from global trade associations — Britain raised the Rs.11,000-crore tax issue yet again at the official level.
Although the fifth Ministerial level India-UK Economic & Financial Dialogue (EFD) largely centred on bilateral macro-economic issues — as is clear from the joint statement released later — Indian government officials confirmed that the Vodafone tax issue “prominently” figured in the discussions that the two leaders had during the nearly half-hour one-to-one meeting.
“Vodafone issue came up for discussion at the bilateral meeting between the two [Mr. Osborne and Mr. Mukherjee]. Osborne said U.K. investors were anxious following India's proposal to amend the tax law,” an official said.
While Mr. Osborne stressed the fact that the Supreme Court's verdict in the case was in favour of Vodafone and that any move to bring the telecom major into the tax net through retrospective amendment would tarnish India's image as an investment destination, Mr. Mukherjee sought to explain the legal position why the back-dated amendment was necessary so as to avert a fiscal crisis and the fact that India was neither a no tax country nor a tax haven.
Even earlier, during post-Budget interactions, Mr. Mukherjee had pointed out time and again that retrospective amendment of tax laws — though not desirable — was aimed at plugging loopholes in legislation and made clear the legislative intent.
Besides, officials have also pointed out that for Vodafone to pose that it was unaware of the tax demand was wrong because Indian authorities had raised a demand much before the completion of the deal. Moreover, neither the U.K. nor other countries such as Australia or China are alien to retrospective amendment of tax laws. There are media reports of Britain claiming 100 million pound sterling from Barclays recently through retrospective tax law amendment.
The joint statement, however, does not reflect any differences between the two countries. Speaking to the media after the ministerial meeting, Mr. Mukherjee said: “We had a very fruitful and effective discussion”. Echoing similar sentiments, Mr. Osborne also noted that the two countries are keen to enhance their two-way economic partnership.
“What we want to see happen is more investment, more trade, more Indian businesses doing businesses in Britain, more British businesses doing business in India,” he said.