We cannot declare India a tax haven to attract FDI: Pranab

Finance Minister Pranab Mukherjee speaks in the Lok Sabha on Tuesday.

Finance Minister Pranab Mukherjee speaks in the Lok Sabha on Tuesday.  

A day after announcing the deferment of the implementation of GAAR (General Anti-Avoidance Rules) to the next fiscal, Finance Minister Pranab Mukherjee on Tuesday said there would be no going back on taxing Vodafone-type transactions and asserted Parliament's right to amend the relevant laws with retrospective effect to ensure that India was not treated as a tax haven by foreign investors.

In his reply to the debate on the Finance Bill, 2012 in the Lok Sabha, Mr. Mukherjee put up a spirited defence of his tax proposals — especially the retrospective amendments — saying that while the judiciary has the powers to interpret the law, the legislature has the right and authority to carry out the necessary amendments so that corporates cannot get away without paying tax by virtue of operating from a tax haven.

“I am fully aware of my right as a legislator, law-making power only vests in Parliament. The Supreme Court may interpret law but equally Parliament has right — legislative right — to express its intention by making amendment to correct the SC judgement,” Mr. Mukherjee said, amidst all-round thumping of desks.

Ostensibly irked at the concerted campaign globally and at home against taxing Vodafone on its acquisition of the Hutchison stake in Hutchison Essar in 2007, Mr. Mukherjee noted that he would like to be guided either by the DTAA (Double-Taxation Avoidance Agreement) or tax and sought to convey a firm message to those who had been harping on the negative impact that such a tax would have on the country's FDI (foreign direct investment) inflow.

“There cannot be a situation that somebody will make money on an asset located in India and will not pay tax either in India or to the country of its origin… because of making some arrangements through certain tax haven areas through a complicated setting up of series of subsidiaries and having huge capital gains on the assets located in India,” he said.

‘India is entitled'

In a forceful argument, explaining the purpose of the retrospective amendment in tax law in the wake of the apex court's verdict on the Vodafone case, Mr. Mukherjee pointed to an amendment of a similar nature in the United Kingdom in 2008 with retrospective effect from 1987 and said: “If they are entitled, then surely India is equally entitled. India is not an inferior country compared to anyone.”

Rebutting opinions that such a tax would deter foreign investors, Mr. Mukherjee said India had a high domestic savings rate and, despite the current negative environment owing to high current account deficit, it was not in such a “desperate” situation.

“We cannot declare India a tax haven simply to attract foreign investment. Please remember, when the investment was also not there we did not eat lizards. Till today, the investment required is substantially met by our rate of domestic savings. Therefore, we are not in that desperate a situation that a country of 120 crore people will be treated as a tax haven like Cayman Islands, Isle of Mann or Virgin Island. We cannot be equated with them. Either pay tax here or you pay tax in your own country with which we have DTAA” he said.

Relief in duties

In the course of his reply, the Finance Minister also announced some relief in excise and customs duties. Central excise duty concession would be extended to chassis for commercial vehicle, ball-point-pen ink, polyester fibre and yarn made from waste, and certain parts of footwear. Duty exemptions on the customs side cover items such as wood pulp, goods required for the setting up of solar power projects and raw materials for the manufacture of the solar cells.

The Lok Sabha later passed the Finance Bill to give effect to all the tax proposals, marking the completion of the three-stage budgetary process. The Bill will now go to the Rajya Sabha, which will return it for Presidential approval.

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Printable version | Apr 6, 2020 6:49:24 PM |

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