Feb 17, 2016 09:09 AM IST | Source: CNBC-TV18

Why not bury retro tax ghost once and for all, expert asks

The Vodafone retro tax case today came to the fore once again after the company today disclosed it had received a fresh notice seeking the amount that the government claims is due from the company.

The Vodafone retro tax case today came to the fore once again after the company today disclosed it had received a fresh notice seeking the amount that the government claims is due from the company.

While the case is years old, the retro tax issue refuses to die, even as the government was about to start international arbitration proceedings in the Vodafone case.

CNBC-TV18's Surabhi Upadhyay and Nayantara Rai spoke to EY National Tax Leader Sudhir Kapadia who agreed with the view that it was about time the government do away with the retro tax issue.

Below is the transcript of the interview on CNBC-TV18.

Surabhi: Does this surprise you a little bit? The timing of these tax reminders that have come through or do you find some merit in the tax department's argument saying that since there is no real headway in that international arbitration perhaps these reminders were warranted and India can raise the tax demand again?

A: First question is yes, it is surprising because the simple point is that this is not a new issue as we all know. There doesn't seem to be any new development which would have propelled the government to really pursue the demand at this stage. So, my limited point is that the cause of the demand is a very old cause. The trigger is a very old trigger. The current government, current Finance Minister has rightly been pointing out that it is a legacy issue which was inherited and there will not be any retrospective taxation going forward which is what your clip also showed the Prime Minister reiterating.

So, having said this that it is a legacy issue the cause was triggered well in the past what begs and explanation or some kind of surprise as you put it is that why now, what has changed because these were supposedly kept in kind of cold storage or abeyance till some finality was determined and the Finance Minister has been saying that because these matters are in various forums kind of sub-judice we cannot even do the past it is a status-quo. So, the surprise element is why would the government want to upset the status-quo at this stage and what is the trigger point to pursue demand at this stage. So, that certainly is a surprise element.

Nayantara: For example in the Cairn Energy case where the timeline has been extended for the share attachment in India to March 31 or in Vodafone the reminding - we do know that the arbitrators or the two sides have been decided in the Cairn Energy PLC case the tribunal has even set up the hearings and the country that is going to be hearing it still has to be. Could this be procedural in nature in both the cases where such decisions or both the sides have to make their stance clear just to understand?

A: In my view the fact of collecting the tax demand does not take away either side the arguments on merits which either side may have to any kind of dispute whether in arbitration or otherwise because the position in law is simply put that whichever side ultimately succeeds the other side has to pay up if there was any demand raised and paid earlier. So, I don't see a linkage in that sense and if I may just put it this way that the current Finance Minister has on more than one occasion rightly pointed out in my view that this retrospective tax introduced by the previous government has actually never resulted even in a single rupee of revenue and to that extent was quite helpless.

Nayantara: Why not repeal it, why not say that whatever is in arbitration, whatever is there before the judiciary not impacting those cases we are going to repeal it, we will repeal it, we have not heard that kind of affirmative commentary coming in from this government despite this being a legacy issue. For example the Justice Easwar panel I understand in the next report is going to be dealing with section 9, I don't know what he is going to suggest or whether he is going to get into this controversial retrospective part of it, it is supposed to be discussed in section 9 but do you think in the run up to the Budget with the kind of commentary that we are seeing from the foreign investors, foreign investors selling us that we are scared to put in billions of dollars till this is there as lot this government might not favour it, we don't know about the next government, maybe the time is to start thinking of repealing it all together?

A: No doubt about it, and if you remember that was clearly the expectation if you like when the new government took power and the first Budget one thought was too short a time but by the time the second Budget was around the question did come up that if the current government did not believe in retrospective taxation - that was the point I was making also fairly acknowledge that no real revenue came about to the government on account of this provision then why not repeal it. So, the point is that yes, that would be seen as extremely positive, no doubt about it.

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