Retrospective tax law which was brought by the previous United Progressive Alliance (UPA) government, Finance Minister Arun Jaitley has said that the retrospective tax law had hurt the country as it scared away the investors. Besides, he also stressed on the need for maintaining the standards of fairness in taxation.
Retrospective taxation led to a sharp reaction from investors, resulting in muted foreign investment inflows. Jaitley said investors wanted stability and predictability and “it is important that standards of fairness in taxation be maintained.” Jaitley further said that the taxes which are realisable have to be collected, but the taxes that are not realisable, should not be collected adding that the law at times might imply that taxes are not payable and that might result in loss of revenue.
In order to get the tax deals with retrospective effect, Former finance minister Pranab Mukherjee had amended the Income Tax Act in 2012.The retrospective taxation evoked sharp reaction from both domestic as well as global investors. This law was used to raise a total tax demand of Rs 20,000 crore on UK's Vodafone for its 2007 purchase of Hutchison Whampoa Indian assets. The same law was used by Income-Tax Department in January 2014 in order to raise a tax demand of Rs 10,247 crore on Edinburgh-based Cairn Energy plc.