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  3. Parthasarathi Shome not in favor of retro amendment of tax laws for raising revenue

Parthasarathi Shome not in favor of retro amendment of tax laws for raising revenue

21 Nov 2013 Evaluate

In the backdrop of long-pending dispute between the UK-based telecom giant Vodafone and Indian tax authorities, Finance Minister's advisor Parthasarathi Shome has recommended that the government should not use retrospective amendment of tax laws to raise revenues. According the Shome, the government should best avoid introducing fundamental changes in tax provisions without consultations and thus not be anticipated by the tax payer. Further, backing these views with examples, the advisor underscored that countries like Brazil and Sweden too had constitutionally removed retrospective taxation, to encourage investments.

The committee opined that retrospective application of tax law should happen in the rarest of rare cases and for one of three reasons only, which is to correct anomalies in the statute, to matters that are clarificatory in nature such as technical/procedural defects that vitiate the substantive law and, lastly, to protect the tax base from abusive tax planning schemes whose main purpose is to avoid tax.

A committee under Parthasarathi Shome was formed to recommend measures to deal with the retrospective amendment of income tax laws and suggest ways of treating taxation cases which involve indirect transfer of Indian assets ,like that of the Vodafone-Hutchison deal. This was on account of long-pending dispute between the UK-based telecom giant Vodafone and Indian tax authorities on tax issues, where British telecom is facing a tax liability of over Rs 11,200 crore, along with interest, for acquisition of Hong Kong-based Hutchison Whampoa’s stake in Hutchison Essar, an Indian telecom company in 2007.  While Vodafone has expressed keenness to reach an amicable settlement of the matter, the issue is yet hanging.

Meanwhile, the latest view of Shome’s committee are not different that the ones suggested earlier as the committee had last year recommended that either the retrospective tax amendment should be withdrawn or penalty/ interest, if covered under taxes should be waived off.

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