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economy | IST

Retro tax amendment: Govt to refund around Rs 8,100 crore; committed to taxation predictability, says finance secretary

In an exclusive interview with Shereen Bhan, Finance Secretary TV Somanathan said that with the proposal to scrap the retro tax, the government has achieved its aim of a predictable tax regime. He said the retro tax was not a good policy and it had become a complicated legacy issue.

The government on Thursday introduced a bill in the Lok Sabha to amend the Income Tax Act and do away with the controversial retrospective tax demands in the process. Now no retro tax will be applicable for indirect tax transfer of Indian assets made before May 28, 2012.
In an exclusive interview with Shereen Bhan, Finance Secretary TV Somanathan said that with the proposal to scrap the retro tax, the government has achieved its aim of a predictable tax regime. He said the retro tax was not a good policy and it had become a complicated legacy issue.
The finance secretary stressed that the country wants to project a steady tax regime.
"We want to make a predictable tax regime both for Indian and foreign investors, that is what we desire. We have to do it in a way that is respectful of India's sovereignty, respectful of Parliament's right to legislate, it is that reconciliation that has been complicated. And we feel we have achieved our aims here, this a signal to Indian and foreign investors that India is a place where we aim for a predictable tax regime," he said.
Somanathan said that the government will refund around Rs 8,100 crore after scrapping the retro tax. According to the finance secretary, the bulk of the amount to be refunded deals with Cairn UK.
"Totally, collections so far have been approximately Rs 8,100 crore, and they have been collected from Cairn UK, which is about Rs 7900 crore approximately and there are smaller amounts from 3 other companies, totalling to the balance of about Rs 200 crore from 3 others - Vodafone which is about Rs 45 crore, New Singular Wireless which is about Rs 119 crore and WNS Capital Investment which is about Rs 48 crore." he elaborated.
Some of the companies had opted for the Vivaad Se Vishwas scheme.
"I think Singular Wireless may have opted for Vivaad Se Vishwaas so it may not come under this category, but the aggregate amounts that we are talking about is Rs 8100 crore," Somnathan said.
Somanathan went on to explain the process for refunds, saying the law lays down certain conditions which companies like Cairn UK snd others will need to follow.
“The legal provisions are that we will not enforce the tax demands against them subject to the conditions specified in the new section. In cases like Cairn and three others where collection has been made, the amounts collected will be refunded to them without interest. And this is subject to their agreeing to the conditions in that section. So, they need to follow this new procedure laid out in this new amendment, after it passed by Parliament. The bill lays down a procedure the affected assessees have to follow, follow that process the amounts collected will be refunded and where collections have not been made the demands will be dropped.”
The finance secretary said the retro tax amendments are the best way forward, India is categorically against accepting arbitral awards decided in foreign courts, as this undermines the sovereign’s right to tax.
“I think this represents the best way forward absolutely because, on one hand, it preserves the principle that has perhaps not been well appreciated outside government, that is the government is not a contracting party, for us, it is not the amount of 8100cr that is at stake, there are issues of the sovereign right to taxation, we think through this method, it offers a fair solution, its a relief for those who have paid these taxes retrospectively, but at the same time it does that within the framework of Indian law and parliamentary sovereignty.
Somanathan stoutly and specifically defended India’s right to tax, saying, “There is a very important distinction. Paying under the arbitration awards is something we are not willing to do. It's a matter of sovereign right to tax, we do not accept these sovereign statutory rights of Indian Parliament and government be adducted at arbitral awards, we will therefore not necessarily agree with them through the arbitral process. This is being done through Indian statute, it is an amendment to Indian law, there is a principle at stake here, different from giving it against an arbitral award. We continue to assert we have a right to tax, we are choosing to do this. So there is an important difference in law and that is a difference which we wish to preserve….”
“We are not accepting those arbitral awards. We have an objection to such disputes getting adjudicated outside India, that is why we are not going through that track. This is in accordance with the Indian law, consistent with the policy that Mr Jaitly had stated in 2015 which is that we don't think retro law is a good policy, those were in litigation at that point in time, it is very recently that those two arbitrations have reached their conclusion, now the time has come for us to take this step. But to do it early, would not have been appropriate.," he added.
Watch the video for the entire discussion.