Bill to nullify retro tax to boost investors' confidence, says Revenue Secy

The bill introduced in Parliament to withdraw all retrospective tax demands will give confidence to the investor community regarding India's stable tax regime, Revenue Secretary Tarun Bajaj said on Thursday.

Finance Minister Nirmala Sitharaman introduced 'The Taxation Laws (Amendment) Bill, 2021' in the Lok Sabha that seeks to withdraw tax demands made using a 2012 retrospective legislation to tax the indirect transfer of Indian assets.

The bill provides for the withdrawal of tax demand made on "indirect transfer of Indian assets if the transaction was undertaken before May 28, 2012 (i.e. the day the retrospective tax legislation came into being)."

"It is also proposed to refund the amount paid in these cases without any interest thereon," it said.

Speaking to PTI, Bajaj said the government has voluntarily taken the decision to nullify all retro tax demands.

"After reaching some conclusion in arbitration proceedings, we have taken this bold step to assure investor community about predictability in tax regime. The retrospective taxation continued to be a sore point and hence the government has voluntarily decided to bring in this bill," Bajaj said.

The Indian government has lost two separate arbitrations brought by Cairn Energy Plc and Vodafone Group against the levy of retrospective taxes.

While the government has virtually no liability in the Vodafone case, it has to refund USD 1.2 billion to Cairn Energy for the shares of the company it had sold, tax refund withheld and dividends confiscated.

Bajaj said the bill would give confidence to the investor community about the government's commitment that it does not believe in retrospective taxation.

Currently, demands have been raised under the 2012 retrospective tax law in 17 cases, of which in four cases enforcement actions have been undertaken.

While the total demand in the 17 cases is to the tune of Rs 1.08 lakh crore, recovery of around Rs 8,100 crore has been made in four cases. This includes Rs 7,900 crore from Cairn UK and about Rs 200 crore from three other companies.

As per the bill introduced in the Lok Sabha, the government will refund this Rs 8,100 crore, without any interest.

"It is not a question of Rs 8,000 crore (which has been collected though this retro tax), but the intent of the government that it does not believe in retro taxation," Bajaj said.