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FM's advisor raises concerns about retrospective amendment of tax laws

Amid long-pending dispute between Vodafone and tax authorities, Finance Minister's advisor Parthasarathi Shome has said the government should not go in for retrospective amendment of tax laws to raise revenue.

Finance Minister's advisor Parthasarathi Shome. PHOTO: PTI Finance Minister's advisor Parthasarathi Shome. PHOTO: PTI
Amid long-pending dispute between Vodafone and tax authorities, Finance Minister's advisor Parthasarathi Shome has said the government should not go in for retrospective amendment of tax laws to raise revenue.

"There are three conditions under which retrospectively can be envisaged. One is to clarify, one is to correct for mistakes and the third one is to really address very egregious tax structure, but not to use it as a revenue generation," Shome said on the sidelines of International Tax Conference organised by industry body Assocham on Monday.

He was replying to a question whether retrospective amendment in the tax laws has vitiated business environment in the country, particularly the one related to the tax dispute with the UK-based telecom giant Vodafone Group.

The British telecom major is facing a tax liability of over Rs 11,200 crore, along with interest, on its 2007 acquisition of Hutchison Whampoa's stake in Hutchison Essar.

Vodafone had earlier expressed keenness to reach an amicable settlement of the matter. India chief Analjit Singh had met Finance Minister P Chidambaram so as to settle the tax dispute through conciliation.

However, Shome said the government cannot be blamed for retrospectivity and a balanced view is required in any such matter. He added: "In terms of tax payers also, certain things need to be looked in how the whole thing built up. One has to take cognisance of the whole thing. One cannot always... blame government for retrospectivity. So if you really look at and examine, you have to take a balanced view."

A committee under Shome was set up to recommend measures to deal with retrospective amendment of income-tax laws and suggest ways of treating taxation cases which involve indirect transfer of Indian assets, of the likes of the Vodafone- Hutchison deal.

The committee had recommended last year that either the retrospective tax amendment should be withdrawn or penalty/ interest, if covered under taxes should be waived off.

Shome said: "Retrospective application of tax law should occur only after exhaustive and transparent consultations with stakeholders who would be affected."

As a matter of policy the government should best avoid introducing fundamental changes in tax provisions without consultations and thus not be anticipated by the tax payer, he said.

However, Shome said the government has introduced an advance pricing programme and safe harbour rules taking into consideration the severity of tax payers.

"These measures seem to be slowly bringing back the confidence of the tax payers and investors and the final outcome are yet to be seen as a series of changes of which some are still anticipated are yet to unfold," he said.