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Govt will not rely on retro tax amendment, says Arun Jaitley in Budget speech

Arun Jaitley seeks to sooth frayed nerves of investors over retrospective tax legislation issue.

By: Press Trust of India | New Delhi |
July 10, 2014 10:36:00 pm
FM Arun Jaitley today proposed raising the FDI cap from 26 per cent to 49 per cent in insurance sector. (Reuters) Arun Jaitley ruled out resorting to retrospective tax legislation, an issue that deterred investors after changes by the previous UPA government.

Finance Minister Arun Jaitley today ruled out resorting to retrospective tax legislation, an issue that deterred investors after changes by the previous UPA government.

“Will this government rely on retrospective tax legislation. My answer is no.

“Ordinarily, we will not legislate to create fresh liabilities which actually means that some old taxes are being collected for last forty years. And (if) some technical problem arises you can correct that. But will you create new liabilities with effect from back date, the answer is ordinarily no,” he told PTI in his post budget interview.

He was responding to a question on the tax issue concerning British telecom giant Vodafone which is facing a tax liability of about Rs 20,000 crore because of retrospective tax amendment carried out by the previous UPA government.

In his budget speech, Jaitley had said that this Government will not ordinarily bring about any change retrospectively which creates a fresh liability.

Answering questions on the issue, he said, it is very clear that with regard to retrospective taxation there are four crystal clear issues which come out.

“Does Indian parliament have a jurisdiction to legislate retrospectively. The answer is Yes it has. I can’t curtail this jurisdiction and I won’t do that”.

Secondly, will the government undertake retrospective tax legislations. The answer is no, he said.

“Three, if the 2012 amendment remains or are fresh notices going to be issued under those amendments. The answer is the assessing officer will not issue those notices,” he said.

Jaitley said tax officials would report such cases to the Central Board of Direct Taxes (CBDT) which will have a permanent committee so that these issues are clearly resolved.

About the past cases, he said, they are pending in courts or other tribunals and the government awaits judgement. “The legal process can resolve those cases,” he added.

Meanwhile, Vodafone has said that it will continue the international arbitration process in the tax dispute with the government.

“We note the FM’s announcement that existing cases arising from the 2012 retrospective tax law should follow the lawful process in which they are currently being adjudicated,” Vodafone said in a statement.

Vodafone will therefore continue process of international arbitration initiated under the India-Netherlands Bilateral Investment Treaty, it added.

Answering question on his budget proposals Jaitley said he had tried to give more money to the marginal taxpayer by hiking tax exemption limit to Rs 2.5 lakh and raising tax deduction limit on saving schemes to Rs 1.5 lakh from existing Rs 1 lakh.

“Since 1947 till today when has in one go tax exemption being increased by Rs 50,000. Rs 1.50 lakh became 1.80 lakh, 1.80 became 2 lakh. Therefore, I have indicated a direction,” he said.

The Finance Minister said he has given three kinds of relief –Rs 50,000 exemption, encouragement of savings, and tax relief on interest payment on housing loan.

The combined benefit could go from Rs 5,000-7,000 to Rs 40,000-50,000, he said.

Jaitley also said he had the challenge to make India more attractive as a country for doing business.

“I have to make doing business in India more attractive, from taxation related problems in India…from transfer pricing to facilities available to domestic investors, I had to clear up those. And therefore one by one I had to resolve these issues,” he said.

On being asked whether bringing down fiscal deficit will have bearing on country’s rating, Jaitley said, “I have provided for Expenditure Management Commission and if anybody feels that in 45 days you can come out with the scheme of rationalisation of subsidies to which people in the last 66 years have not found an answer, we must rate the agencies then.”

Jaitley asked credit rating agencies to be “more realistic” about the new government’s ability to slash subsidies in the short term.

On disinvestment, Jaitley said that there are large number of public sector enterprises (PSUs), which have flexibility of divesting 4-5 per cent.

“The markets are all an time high, a great time to divest is today. We will use this as an opportunity,” he added.

In his Budget speech, Jaitley said two years of sub five per cent growth in the Indian economy has resulted in a challenging situation.

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