India committed to predictability in taxation, says Finance Secretary as Govt seeks to undo retro tax

Finance Secretary TV Somanathan.

British oil major Cairn Energy and other companies who were charged with retrospective taxation would be provided a refund without interest, Finance Secretary TV Somanathan said on August 5, shortly after the Centre tabled a Bill in the Parliament to undo the 2012 retro tax law.

The proposed legislation, Taxation Laws Amendment Bill, would amend the Income Tax Act, 1961 to undo the provision which allowed taxing transactions prior to May 28, 2012.

"We will not enforce the tax demands. Amounts collected will be refunded minus interest," Somanathan said while speaking to CNBC TV 18.

This is an "important time for India to attract investments", the Finance Secretary said, adding that the new law is aimed at clearing apprehensions regarding India's taxation regime.

The message is that "India is committed to predictability in taxation", Somanathan told the news channel.

The proposed Bill lays down the procedure for tax refunds subject to conditions, he said, adding that it "represents the best way forward" and offers a "fair solution" to companies who have objected to the retro tax law.

Referring to the lawsuits filed by Vodafone and Cairn Energy, Somanathan said both cases have reached finality in arbitration. "We are very consistent with our earlier position...We are not accepting the arbitration awards," he said.

"We do not accept that sovereign right of parliament is being arbitrated in foreign courts. We continue to assert we have the right to tax and we preserve this right," Somanathan, who is also the Expenditure Secretary, added.

Somanathan noted that "approximately Rs 8,100 crore was collected so far" in form of retrospective tax, "which includes over Rs 7,000 crore collected from Cairn UK".

The offer to refund the amount minus interest is a fair solution, he reiterated, adding that "it is not about the Rs 8,100 crore, (but) there are other issues at stake".

"We want a predictable tax regime for Indian and foreign investors within the Parliament’s right to legislate," Somanathan further noted.

In December last year, the international arbitration tribunal in The Netherlands had ruled in Cairn's favour in its lawsuit demanding $1.2 billion from India. The government has not not accepted the tribunal's verdict.

India had similarly lost a case against Vodafone in the tribunal, for its demand for Rs 22,100 crore in back taxes from the telecom giant.