As Modi Govt Ends Retrospective Taxation, Congress Is Still Confused

In a major move to further ease of doing business in India and improve predictability in taxation regime, the Modi Government introduced a bill to amend the Income Tax Act and end all retrospective taxation imposed on indirect transfer of Indian assets.

This bill was cleared by Lok Sabha today itself.

This contentious tax law which sought to retrospectively raise large tax demands on foreign investors like Vodafone and Cairn Energy was passed in 2012 under the UPA Government headed by renowned economist Prime Minister Manmohan Singh.

Vitiate Investor Climate

The amended law proposes to drop any tax demand made on transactions that took place before May 2012 and repay any taxes already collected without interest. To be eligible, the concerned taxpayers would have to drop all pending cases against the Government; also, not make any demands for damages or costs from the Government.

The Bill also states that no demand shall be raised in future for any indirect transfer of Indian assets if the transaction was undertaken before 28 May 2012.

This is the date on which the Finance Bill enabling retrospective taxation received the assent of the President.

This Bill was cited as the primary reason for vitiating India’s investment climate. It was a long pending and legitimate demand of the Indian industry to end retrospective taxation. By bringing this amendment, the Modi Government has further enhanced India’s ease of doing business and brought clarity in the taxation matrix.

Modi Government Never Supported Retrospective Taxation

On multiple occasions in the past, officials and ministers from the Modi Government have clearly said they do not believe in retrospective taxation.

Speaking to Indian express in September of last year, Finance Minister Nirmala Sitharaman emphatically said that:

“Sometime between 2014 and 2015, the then finance minister Arun Jaitley had made it very clear that this government, under Prime Minister Modi, does not believe in retrospective application. Whilst no one ever denies the right of any sovereign Government to decide on amending anything, our faith lay in amendments, but prospective application.”

Speaking to The Hindu in February, Principal Economic Advisor Sanjeev Sanyal had also said :

“This is a legacy issue… The former Finance Minister had given a commitment that such retrospective taxes will not be done.”

Nevertheless, the Government has been firm on the principle of sovereign’s right to impose taxes and there has been no change whatsoever on that.

With the passage of the law, the ghost of retrospective taxation has been laid to rest by Modi government.

Congress Still in State of Confusion

This contentious and anti-business retrospective tax which was brought during UPA Government under Prime Minister Manmohan Singh has once again left the Congress speaking in opposing voices.

While Former Finance Minister P Chidambaram welcomed the amendment saying he was glad that this issue was being laid to rest, Manish Tewari opposed it insinuating that India is giving up sovereign taxation powers. As mentioned above, Modi government has been firm on the stance of sovereign taxation powers; only retrospective taxation will end.

Moreover, as per the new law, Cairn energy will get the refund only if it withdraws its case totally which ensures end to retrospective taxation sage but does not amount to infringement of India’s sovereign rights to tax.