After assuring investors in Hong Kong and Singapore on the proposed General Anti Avoidance Rules (GAAR), Finance Minister P Chidambaram on Tuesday exuded confidence in an interaction with the community in London that the long tax row with Vodafone, the UK-based telecom major, would be settled amicably.
In the Queen’s land
"I did clarify to them that Vodafone had formally offered to engage with the government of India in discussions. They had two rounds of discussions with officials. I am confident we will find a resolution to the issue, so that we can put it behind us and move forward," he told reporters in London, after addressing global investors on the fourth leg of his roadshows abroad, which began last week,
Chidambaram clarified the issue of Vodafone figured only peripherally, and came as a question. "They were more concerned about fiscal consolidation, policy to address structural issues and stalled projects, and how we are going to remove these roadblocks and get them started," he said.
Recently, the government sent a reminder notice to Vodafone to pay Rs 14,000 crore on its acquisition of Hutchison Whampoa’s assets in India in an overseas deal in 2007. The revenue department had issued a notice at the time but the company finally got relief after the Supreme Court in 2012 had said Indian officials lacked the jurisdiction to tax the deal.
However, then finance minister Pranab Mukherjee brought retrospective amendments to the Income Tax Act, to bring Vodafone-type deals under the net. The Parthasarathi Shome committee, appointed by the Prime Minister's Office after Mukherjee quit to become President, had suggested amendments to the I-T Act happen with retrospective effect only in the rarest of cases. And, even if deals had to be taxed, the liability should be on the one making the gains. In the Vodafone case, if this was accepted, the liability should come on Hutchison.
In his interactions with investors in Hong Kong and Singapore, Chidambaram had said the ghost of the earlier avatar of GAAR had been buried. This earlier form of GAAR and retrospective amendments to the I-T Act were the two main proposals in Budget 2012-13 which drew flak from global investors.
Chidambaram also assured that the Budget for 2013-14 would be "responsible", with the government implementing many of the recommended decisions and changes in the run-up to the 2014 elections.
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Chidambaram said investors expressed reservations over political stability and the government’s capacity to take reforms forward. They noted elections were due in 2014 and decisions were liable to “falter in the run-up to the elections". "I assured them that the polls are 15 months away and the Budget presented in February will be a responsible one, that we will implement many of the decisions and changes in the run-up to the polls," he told reporters after the meeting.
At Frankfurt
He added there was no reason for investors to doubt that "in the run-up to the polls we will be anything but responsible". Going by the number attending the conferences and the questions they asked, it clearly showed there was enormous interest in and goodwill for India, said the minister. Both in Frankfurt (he was there yesterday) and London, the investors wanted India to recapture what it achieved between 2004 and 2009. "I sincerely hope that these roadshows have helped to answer their questions, clarified their doubts and stimulate interest in India," he said.
In Frankfurt, the finance minister described the current account deficit and fiscal deficit as the two main problems faced by the government, even as he wooed European investors to have confidence in the India growth story.
Under no circumstances, he asserted, would he allow the Centre's fiscal deficit to breach the revised target of 5.3 per cent of GDP for the current financial year.
This assurance came a day before the Reserve Bank cautioned against a rising gap between the government's expenditure and receipts. The Bank said large fiscal deficits would accentuate the CAD risk, furthering crowding out private investment and stunting growth impulses.