Govt does sudden U-turn, buries retrospective tax: Rs 1.1-lakh-crore tax demands nullified; Rs 8,100 crore to be refunded

Govt does sudden U-turn, buries retrospective tax: Rs 1.1-lakh-crore tax demands nullified; Rs 8,100 crore to be refunded

The government on Thursday put to rest its infamous 2012-born tax law that sought to retrospectively tax gains from indirect transfer of Indian assets. Though the move notionally involves a scaling down of New Delhi’s tax revenue ambitions by at least Rs 1.1 lakh crore, any potential loss could be more than offset as the decision could improve the country’s standing as an investment destination, boosting its growth potential and thereby tax receipts.

The surprise tabling of the ‘The Taxation Laws (Amendment) Bill, 2021’ by finance minister Nirmala Sitharaman in the Lok Sabha was hailed by industry and tax experts. Government managers justified the decision that amounted to a U-turn from New Delhi’s public posturing on the issue, saying it was necessary given that more than anything else, the policy focus should now be on ensuring the country’s ‘future growth’.

For the record, the Bill provides for the withdrawal of tax demand made on “indirect transfer of Indian assets if the transaction was undertaken before May 28, 2012 (i.e. the day the retrospective tax legislation came into being)”. It is also proposed to refund the amount paid in these cases without any interest thereon.

The government has so far recovered Rs 8,100 crore, invoking the controversial law, including Rs 7,600 crore from Cairn Energy.

The 2012 law had empowered the government of India to make tax demands concerning cross-border deals all the way back to 1962; the intent was to tax gains arising out of transfer of shares of companies registered outside India provided such shares derived ‘substantial value’ from assets located in India. The move has since been exposed as a misadventure; the Hague Court ruled against against India in the two resultant high-profile cases involving telecom giant Vodafone and UK-based Cairn Energy in September 2020 and December 2020 respectively.

Source: Financial Express

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