Finance Minister Pranab Mukherjee on Tuesday declined to roll-back a change in the Income Tax Act with retrospective effect to tax foreign firms for capital gains made on Indian assets, saying the country cannot be reduced to a tax haven.
Replying to the debate on the national budget he had presented in March, Mukherjee also said the legislature had the powers to correct decisions by courts that go against the desired objective of a state.
His reference was to the capital gains tax of Rs. 11,000 crore ($2.2 billion) imposed on Vodafone on acquiring the stake of Hong Kong-based Hutchison held in an Indian telecom firm, then called Hutchison-Essar. The law was sought to be amended retrospectively.
"I would like to be guided by either double taxation avoidance agreement, or tax," the finance minister said, alluding that companies cannot be allowed to avoid such tax just by way of a complex holding structure.
"There can't be a situation somebody will make money on an asset located in India and will not pay tax either to India or to the country of its origin."
Several multinational companies, that had made similar acquisitions in the past, were also keenly awaiting the finance minister's response, fearing that the amendment when approved will make room for the taxman to come knocking on their doors as well.
While several corporate lobbies, notably those representing overseas companies, warned that retrospective tax could affect investment, Mukherjee thought otherwise: "We can't allow India to be tax haven to attract foreign investment."
The finance minister said ever since the government sought to amend law retrospectively, following the Supreme Court's decision this year ruling in favour of Vodafone, there were suggestions that the executive was challenging the authority of the judiciary.
"I am fully aware of my rights as a legislator," said Mukherjee, adding: "British amendments are of a similar nature. Exactly in a similar nature in 2008 they made amendments in their Finance Bill which was effective from 1987."
He said even the British -- where Vodafone is headquartered -- were giving retrospective effect to their legislation and there was nothing new in that. He said in a similar vein the proposed amendment by his government was merely "clarificatory" in nature.
"India is not a inferior country compared to any other."
[Source : Hindustan Times]