rediff.com

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  

Rediff News  All News 
Rediff.com  » Business » Govt may have to take Rs 40k-cr hit

Govt may have to take Rs 40k-cr hit

October 10, 2012 14:11 IST
The government may take a hit of about Rs 40,000 crore if it accepts the recommendations of the Parthasarathi Shome panel to tax indirect transfer of Indian assets prospectively, as against the provisions of the Finance Act, 2012, to tax all such deals retrospectively.

The government has even put a validation clause in the law to demand from companies where a court ruling had gone against the government.

The income tax department had estimated that the implication of the changes in the Income Tax Act to levy capital gains tax on indirect transfer of Indian assets could be Rs 35,000 crore to Rs 40,000 crore.

For a cash-strapped government looking at an ambitious tax collection target, Rs 40,000 crore could have helped bring down the fiscal deficit substantially.

The retrospective amendments have empowered the government to tax Vodafone and similar cross-border transactions by Cairns UK Holding Ltd, Unilever HPC Finance Services Inc USA, Accenture Services Pvt Ltd, Euro Pacific Security Ltd, Tata Industries Ltd/AT&T, McLeod Russel India Ltd, SAB Miller, Sanofi Pasteur Holding SA.

If no changes are made to the Finance Act, the tax department can raise over Rs 20,000 crore from Vodafone, including interest and penalty for its failure to withhold the tax while making the payment to Hutchison at the time of concluding their deal.

If the recommendations are accepted by the government, in a scenario where the law is applied prospectively, Vodafone would not be required to pay anything on its $11.2-billion deal with Hong Kong-based Hutchison in 2007, provided the finance ministry does not reach a conclusion that the Vodafone case falls in the category of "exceptional or rarest of rare cases", as described by the Shome committee.

In the second scenario where the law is applied retrospectively, Hutchison could be asked to pay Rs 7,900 crore to the Indian government.

The committee said treating a person as an assessee in default or as a representative assessee of a non-resident would amount to the imposition of a burden of impossibility of performance. It said penalty and interest should not be charged so that there is no undue hardship caused to the taxpayer.

The tax department had sent a notice to Vodafone treating it a representative of Hutchison in India. It had also slapped a penalty of Rs 7,900 crore besides raising a demand of over Rs 11,000 crore, including interest.

Source: