Ministry of Finance in touch with Cairn, Vodafone to shut post-tax instances: Sitharaman

Treasury Department Nirmala Sitharaman said Treasury Department officials spoke to Cairn and Vodafone about retrospective tax case closure, refund and settlement. She added that to date there has been no interaction between her and the companies on the matter.

Speaking to reporters on Monday, the finance minister said that rules for the abolition of retrospective taxation will soon be established. These rules follow the relevant law passed by Parliament during the monsoon session.

Earlier this month, Parliament passed a bill amending the Income Tax Act to abolish all tax claims made with the Retrospective Tax Act 2012 before May 28, 2012, the date it came into effect.

Under the bill, the state will reimburse all post-tax payments companies made to companies, provided they withdraw all legal challenges on the matter. However, there is no interest on the amount.

India introduced retrospective taxation rules in 2012 to increase the tax claim against indirect transfers of Indian assets. The first company to face retroactive tax claims was Vodafone for the purchase of Hutchison Telecommunication’s stake in Hutchison Essar.

In 2014, the government again used the 2012 amendment to collect tax claims on Cairn Energy for an internal corporate restructuring carried out in 2006. In 17 cases, income tax claims were made under retroactive tax law.

Arbitration proceedings under the bilateral investment protection treaty with the United Kingdom and the Netherlands were commenced in four cases, two of which – filed by Cairn Energy and Vodafone – India lost.

The government is not liable to Vodafone, but still has to pay Cairn $ 1.2 billion as an arbitration award. The UK-based energy company had identified foreign Indian assets that were about to be confiscated to cover the price.

Prospective investors were concerned about India’s retroactive taxation laws. With the scrapping, the central government expects foreign investment to return to the country.

During the press conference earlier this morning, the finance minister ruled out any possibility of cutting excise duties on gasoline and diesel, saying payments in lieu of the fuel price subsidized in the past would be constraints. Transportation fuels have reached their all-time highs in the country in recent months.

The previous Congressional-led UPA administration had issued bonds to state oil companies to make up the difference between artificially lowered fuel sales prices and costs. These oil bonds and the interest on them are now being paid.

“If I didn’t have the burden of servicing the oil bonds, I would have been able to cut the consumption tax on fuel,” said the finance minister.

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