In the Union budget shared in Parliament, then finance minister Pranab Mukherjee had announced that 50-year-old tax laws would be amended retroactively to allow the government to tax the purchase of Indian assets, even if the deal was between foreign companies. The government says Vodafone owes the government Rs 11,000 crore in capital gains taxes.
After taking over as the country’s new Finance Minister, P. Chidambaram had said last week that he had asked for a review of the proposal to amend tax laws—an announcement interpreted as a series of new measures the government will take to resuscitate flat-lining investor confidence and interest.
Vodafone has argued that Indian authorities have no right to tax the transaction between two foreign entities and even if tax was due, it should be paid for by the seller not the buyer. The government says that Vodafone should have withheld taxes from Hutchinson at the time of the deal.
Foreign investors had panicked, especially because the government’s decision to change the law came after the Supreme Court had ruled in favour of Vodafone after a five-year legal battle.
“Such tax may be collected and recovered and appropriated in accordance with the income tax act not withstanding any judgement decree or order of any court,” the Attorney General has said. Mr. Vahanvati has said that notice can also be sent to Hutch immediately to initiate proceedings to recover the taxes due.