Retrospective tax law scared investors away, says Jaitley

He stressed the need for maintaining fairness in taxation

Finance Minister Arun Jaitley on Saturday said the retrospective tax law had hurt the country by scaring away investors.

Jaitley stressed the need for maintaining fairness in taxation in his address to trainee officers of the Indian Revenue Service.

Referring to the retrospective tax law brought in by the previous United Progressive Alliance government, he said, “Did the provisions of retrospective taxation help India or did they hurt India? My answer is very clear, they hurt India because at the end of the day we have not been able to collect those taxes and we scared investors away.”

Former finance minister Pranab Mukherjee had amended the Income Tax Act in 2012, empowering the government to tax transactions with retrospective effect.

This law was used to raise a tax demand of Rs 20,000 crore on Vodafone for its 2007 purchase of Hutchison Whampoa’s Indian assets. The matter is in arbitration after the UK-headquartered telecom company evoked the India-Netherlands investment treaty.

The law was also used in January 2014 to raise a tax demand of Rs 10,247 crore on UK-based Cairn Energy. Cairn has initiated arbitration under the India-UK investment treaty.

Retrospective taxation led to a sharp reaction from investors, resulting in muted foreign investment inflows. Jaitley said investors wanted stability and predictability and “it is important that standards of fairness in taxation be maintained.”

“At times we deviate from this principle and we think that it is in the larger national interest to collect more tax, and we become extra-aggressive, either in our interpretation or even in legislation,” he said.

Jaitley told the trainees, “When in doubt, go straight. If you lean either way, you will unfairly cost revenue or you will unfairly tax an assessee.”

On the goods and services tax bill stuck in the Rajya Sabha Jaitley said it could be passed in the next session. “Halfway through the next session, the numbers in the Upper House are going to change. I am reasonably optimistic that we may be able to push it through,” he said. Parliament’s budget session will start in the last week of February.

The proposed GST will subsume all indirect taxes like excise duty, service tax and value-added tax. The Congress has blocked the bill with three key demands, derailing the government’s plans to roll out the tax from April 1, 2016.

“I continue to discuss with the states and with all political groups so that we can ensure its safe passage in the Upper House,” Jaitley said.