Opinion Undoing business
Vodafone conciliation failure is a serious setback. Government should have taken the long-term view.
Vodafone conciliation failure is a serious setback. Government should have taken the long-term view.
The finance ministry will move a cabinet note withdrawing the conciliation offer made to Vodafone, which was approved by the Union cabinet in June 2013, regarding the Rs 20,000 crore capital gains tax raised against Vodafone Plc. The talks broke down because the finance ministry was unwilling to accommodate within the scope of the conciliation process the dispute on the Rs 3,700 crore transfer pricing tax demand raised against Vodafone India on the transfer of Analjit Singh and Asim Ghose’s shares in 2007.
This brings us back full circle to 2012 — the tax demand stemming from the ill-advised retrospective amendment of the Income Tax Act is back on the table.
The ministry can hide behind the fig leaf that Vodafone India’s transfer pricing dispute is currently pending before the Income Tax Appellate Tribunal, which is why it could not be included in the conciliation agenda. In response, Vodafone can rightly argue that the 2007 share transfer is not only an integral part of the original case but its stand on this specific part of the dispute has also been vindicated by the Supreme Court. But the key question is, would the larger purpose of the conciliation not have been better served had the government included the transfer pricing dispute in the talks?
The cabinet’s original decision to explore conciliation was itself exceptional and welcome. Coming on the heels of the government’s stubborn refusal to accept the SC judgment in favour of Vodafone and the resultant retrospective tax amendment, the decision set the right tone. Indeed, along with Finance Minister P. Chidambaram’s promise of a stable, non-adversarial tax regime and the Parthasarathi Shome committee report, which frowned upon retrospective taxation, conciliation was seen as part of the course correction to soothe investor concerns.
Vodafone is not an isolated case. Other international mergers and acquisitions — AT&T and Idea Cellular, Sesa and Sterlite — are on the taxman’s hitlist. Given companies’ desperation to avoid expensive and time-consuming litigation and how unnecessarily litigious the tax department in India is — it loses 60 per cent of all direct tax-related appeals in the higher judiciary, of which it initiates 65 per cent — a lot was riding on the success of the Vodafone conciliation. The ministry has undone its earlier efforts and blighted the big picture.
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