Published on 28th April 2012
Pressure from various quarters notwithstanding, the government is sticking to its guns on retrospective amendments to the Income Tax Act, as it eyes ~35,000-40,000 crore tax realization from deals similar to the $11-billion Vodafone Hutchison deal in 2007.
Finance ministry officials said if the government did not opt for the amendments, those who had paid tax in such deals would ask for refunds.
The merger and acquisition deals pending in courts include the $150-million Idea Cellular AT&T deal, the GE’s $500-mn deal with Genpact, the $981 million Mitusi - Vedanta Sesa Goa deal, the SAB Miler- Fosters deal and the $770-mn Sanofi Aventis- Shanta Boitech deal.
Though officials said other deals were also being investigated, they refused to divulge the details.
According to the Income Tax Department’s estimates, deals similar to the Vodafone Hutchison one would yield ~35,000-40,000 crore. Officials, however, said these were rough calculations.
In the $6-billion Cairn India deal between Cairn Plc and Vedanta, the parties concerned have already made an arrangement to pay capital gains tax to the government. In fact, London-based Cairn Plc has already paid more than $500 million to the Indian government.
In the recent Max New York Life deal, Japan’s MS&AD Insurance Group withheld tax while acquiring 26 per cent stake in the company for ~2,731 crore.
New York Life Insurance Company said the capital gains should not be subject to tax in India, as it held the shares in the life insurance joint venture with Max India through a holding company in Mauritius. However, it has allowed the Japanese company to withhold the tax as a precaution, and would file for a refund with the tax department later.
Meanwhile, officials claimed retrospective amendments would not impact foreign direct investment in India, as investors do not look at only taxes, but the overall economic environment.
Vodafone, however, does not agree. A source in Vodafone said even as tax rates may not be minutely assessed while investing, the certainty of tax laws and the policy environment what certainly looked at.
He also contested the finance ministry’s view that retrospective amendments to income tax laws were not being carried out in India alone, but in the UK as well In the Barclays deal, the UK government had amended a tax law in 2009 to clarify certain assistance given to companies in distress would not qualify as tax deductions. But when Barclays continued to avail of that exemption, UK authorities clarified the company would have to pay tax for these for the period when the tax laws were first clarified.
"It was not as if the law was amended with retrospective effect, as is being done in India. In no other country is it done after a court verdict and that too, with a retrospective effect. You cannot change the rule of the game in between," the source said.
At a meeting between Finance Minister Pranab Mukherjee and his UK counterpart George Osborne, Mukherjee had mentioned the UK’s move to amend its tax law a day before Mukherjee presented the Budget in Parliament. Osborne had told Mukherjee investors were anxious, as India proposed to amend the Income Tax Act retrospectively. VODAFONE- TYPE DEALS IN COURTS:
|Idea Cellular-AT&T’s $150-mn deal pending in Bombay HC |GE- Genpact $500-mn deal pending in Delhi HC | Mitsui- Vedanta $981-mn Sesa Goa deal pending in Goa HC |SAB Miller-Fosters 2006 deal pending in Bombay HC |Sanofi Aventis-Shantha Biotech $770-mn deal pending in Bombay HC.