Besides the retrospective amendments to Section 9 of the Income Tax Act, 1961, the Finance Ministry will come out with a “certain clarification” on indirect transfer of assets by foreign investors, Finance Secretary R.S. Gujral said on Thursday.
He told journalists that foreign investors sought a clarification on whether the sale of shares by any one shareholder would be taxed. “We will make clear the legislative intent of not taxing deals in case where one shareholder of FII sells share.”
The General Anti-Avoidance Rules (GAAR) provisions had evoked bitter criticism from both domestic and foreign investors and are believed to have scared foreign institutional investors (FIIs) away, leading to flight of capital and widening the current account deficit.
More than the GAAR, which was effectively stalled by a year, it was the ‘Vodafone tax’ that raised a lot of heat and dust at home and abroad with intense lobbying by global investor associations, domestic corporates and also U.S. and the U.K. government functionaries. However, the outgoing Finance Minister, Pranab Mukherjee, stood his ground on the tax amendment and ensured that the budget proposal, of which Mr. Gujral was one of the architects, became part of the statute.
Referring to the retrospective amendment, Mr. Gujral said the Income Tax Department would not reopen cases, in which assessment proceedings had been finalised till March 2012.
While Vodafone India chairman Analjit Singh, along with his executives, has had post-budget meetings with Finance Ministry officials to thrash out the issues and implications of the retrospective amendments for the company in its stake acquisition deal with Hutchison Whampoa, the country chief also had a meeting on Thursday with Planning Commission Deputy Chairman Montek Singh Ahluwalia. During the 30-minute meeting, Mr. Ahluwalia is believed to have assured the telecom major of a “level playing field” and advised it to stay invested in the country.
Earlier in the day, Cabinet Secretary Ajit Seth held a meeting of top bureaucrats of key economic Ministries to take stock of the situation and work out a road map for arresting the slowdown in growth.
With the Prime Minister taking direct charge of the Finance Ministry, the government appears to have geared up for affirmative action, especially after Dr. Singh directed his top officials and key advisers to put in place measures to reverse the climate of pessimism and revive the “animal spirit” in the economy.