Earlier this month, Finance Minister Pranab Mukherjee proposed to retrospectively amend the IT Act with effect from April, 1962 to tax deals involving overseas companies that have interests in India.
Rejecting criticism of the government's move to retrospectively amend Income Tax laws, Finance Secretary RS Gujral on Friday said an atmosphere of "phobia" was being created around the proposal that could bring M&A deals like Vodafone under its gamut.
"Questions are raised that retrospective amendment (in Income Tax law) will adversely impact FDI and international sentiments. I am sorry to say , this is just trying to create a phobia...the more you say (this) the more people who do not know will say 'Kuch toh hoga' (something is there)," Gujral said while addressing the interactive session on Budget 2012-12 with the industry.
Gujral further also came heavily on Vodafone deal, saying that there was no involvement of FDI in it. "This is not FDI transaction...where is an FDI in this sale...capital gain tax is there and the tax is leviable...where is the issue of FDI in this...no money has come in, so FDI is not being taxed," he said.
Earlier this month, Finance Minister Pranab Mukherjee proposed to retrospectively amend the IT Act with effect from April, 1962 to tax deals involving overseas companies that have interests in India.
"In every budget, we have retrospective amendments...why suddenly the questions are being raised," he said, adding, that more than half of the earlier amendments in tax laws had been beneficial and nobody raised those issues at that point of time.
Gujral informed that in 2007-08 budget, there were eight amendments in tax laws, five amendments in 2008-09, four in 2009-10 and eleven in 2010-11.
He also said the amendment in income tax law is not a retrospective amendment, rather it is a retrospective clarification. "It is the clarification of the intent and it is from the day when the statute was passed," he said.
Asked when the government would initiate the process of recovering tax from Vodafone, Gujral said, "Why do you assume it (Retrospective amendment) is the law? As on date, Supreme Court order is very much there with respect to Vodafone."
Referring to the Vodafone case in his speech, Finance Secretary said that India was just asking 10 per cent of withholding tax on the transaction that took place between Vodafone International Holdings and Hutchison Group.
"USD 11 billion of capital gain is made from the sale of business in India and you say no tax is to be paid any country in the world...what government of India says (on Vodafone), on your capital gain, please withhold 10 per cent tax...is that asking too much? Is the demand unfair?" he said.
"Is it an issue (that) we should not tax because one or two people are unhappy because they are being asked to pay 10 per cent tax when they were earlier paying zero per cent tax anywhere in the world," Gujral said.
He said such type of transactions will have tax implications of about Rs 40,000 crore, whereas just raising excise duty and service tax each by 2 per cent in the budget would yield only Rs 36,000 crore.
In Budget 2012-13, Finance Minister Pranab Mukherjee has proposed amending the Income Tax Act retrospectively from 1962 to bring under net overseas deals involving domestic assets.
This would have a bearing on Vodafone which won the legal dispute in Supreme Court over Rs 11,000-crore tax claim raised on its USD 11-billion deal with Hutchison Essar in 2007.
The proposed changes in the I-T Act evoked sharp reactions from industry which argued that the move will hurt foreign investment.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}