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Will BJP forego Rs 30,000 crore by repealing retrospective tax law?

Thursday, 8 May 2014 - 12:55pm IST | Place: New Delhi | Agency: dna

If they stand firm on what they say on the retrospective tax amendment, it is likely that the country's fisc will have to take a hit of at least Rs 30,000 crore.

Bharatiya Janata Party (BJP) has come heavily on the United Progressive Alliance's (UPA) retrospective tax amendment regime. So if the party comes to power and decides to do away with the amendment and go ahead with smoothening the law, it will likely have an impact of Rs 30,000 on the country's fiscal health. Needless to mention, it will be a huge relief to companies such as UK-based telecom giant Vodafone who are caught in multi-billion taxation deal with the Indian government.

"There has to be a stable tax regime in which retrospective taxation has no place," Prakash Javdekar, BJP spokesperson, told dna talking about the party's perspective on the issue. He, however, denied to divulge details when asked if the party would let companies like Vodafone do away with the tax. "At this stage, there is nothing more that can be said. It will be the government's prerogative," he added.

The company faces a Rs 20,000 crore tax demand including interest and penalties relating to its $11 billion transaction by Vodafone Group to acquire a controlling stake in the then Hutchison Essar, now known as Vodafone India.

In its manifesto, BJP has come heavily on the UPA's tax regime, calling it "tax terrorism" which not only creates anxiety amongst the business class and negatively impacts the investment climate, but also dents the image of the country.

The party's Prime Minister candidate Narendra Modi too has criticized the retrospective tax amendments on more than one occasion. In an interview with an electronic channel last month, Modi called decision on retrospective tax as ill-advised. "We shouldn't take decisions with retrospective effect. We need to create confidence in our system, but such decisions defeat the purpose," he said.

According to government officials, the finance ministry has already started looking at the ways of relaxing it. "The relaxation may be in the form of either doing away with the interest or staggering the principle amount over a period of time," a senior finance ministry official told on the basis of anonymity.

Vodafone is currently going through a conciliation process with the government, however there has been no conclusion on it.

Another firm, the Indian unit of Europe's largest oil producer Royal Dutch Shell Plc, Shell India Markets has also been caught under similar tax issues.

According to reports, the Income Tax department has issued Shell with a transfer pricing adjustment of $3 billion and a tax demand of $1 billion.

All these issues come under the prerogative of the retrospective tax amendment that happened in 2012.

Other companies who are also involved in different tax disputes with the Indian government are Finnish handset manufacturer Nokia, IT firm IBM and multi-national corporation WNS Holdings.

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