Retrospective Changes In Tax Laws Lowers Confidence Of Companies Especially Foreign Companies

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The controversial move to amend the IT Act with retrospective effect from 1962 to cover overseas mergers and acquisitions with respect to  Vodafone- specific, has not sent correct signals to corporate community in India and overseas.

Whether Finance Minister agrees or deny it, this amendment comes against the backdrop of the Supreme Court order that has held that the $ 12 billion deal between British telecom giant Vodafone and Hutchison  was not liable to tax in India, rejecting the IT department’s demand for Rs. 10,000 crore tax. Since Indian Government cannot afford to forego this huge amount therefore they have amended the IT Act with retrospective effect.

Affirming that the amendment was not Vodafone- specific, the Finance Minister said that the move was not not merely to prevent erosion of revenues in present cases but also to prevent the outgo of revenues in old cases.

On the face value, explanations given by Finance Minister appear to be correct but in the long term perspective of confidence of business class for investing in India, this move will have negative effect. It is true that the government of the day have to address huge fiscal deficit but it can find ways and means to collect more revenues for its coffers.

I am not an economist but our Prime Minister and Finance Minister with their team of economic experts must be aware of the facts that only limited numbers are paying taxes and rest of the population is still enjoying all the comforts of government without paying any taxes. Take for instance, big businesses in wholesale markets of Delhi and in other states, where huge cash transactions are conducted  worth crores of rupees everyday, without paying even a single penny to the government. I want to know from Finance Minister and State governments, what actions they have taken to stop this practice and had they been serious enough, collections of income tax and sales tax will pile up and parallel economy of black money will also be curtailed.

Another area of concern where government is spending huge amount of tax payers money is social sector and majority of the disbursal is unaccounted for and this is very serious matter. Most of the time, the money is not reaching the right hands and this is major reason for corruption emanating from social schemes.

Dear Finance Minister, the above two illustrations are just an example how you can generate more revenues for your treasury and also plug the loopholes in your social schemes. Be brave enough and take bold decisions to tax the untaxed businesses and do not spoil atmosphere of  investments, mergers and acquisitions.

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