Global investors warn India against implementing retrospective tax laws

Plans by India’s Finance Minister Pranab Mukherjee to amend taxation laws with retrospective effect, going as far back as 1962, have rattled global investors. Specially Item 113 of the Finance Bill, apparently targeted at Vodafone is troublesome. This amendment appears to circumvent judicial fair play and to undermine constitutional procedures in that it seeks to grant tax authorities with almost arbitrary powers that, if approved by the Parliament, would be enforceable „notwithstanding anything contained in any judgment, decree or order of any Court or Tribunal or any authority […]„. Even within India commentators have criticized the proposed amedment as „draconian“.

This is, however, not the only proposal causing headache to firms, global and domestic. There are reports that „tax commissioners would have powers to arrest industrialists or company officials under new provisions of the General Anti-Avoidance Rule (GAAR)„. Mr. Mukherjee has sought to reassure the industry by saying that „Tax department won’t act like policeman„. This is however, at best, a weak consolation since the very option remains in force. Mr Mukherjee reportedly also assured that „a plethora of cases would not be reopened for scrutiny„, which is an even more problematic statement since it means that the provisions of law would be probably applied selectively. According to one report, the proposed Finance Bill contains over 20 amendments with retrospective effect.

Now, „Industry groups representing 250,000 companies across North America, Asia and the U.K. have warned India’s prime minister that a proposed retroactive tax plan is causing foreign businesses to reconsider investing in India“, as Business Week (April 2, 2012) reports.A ccording to one report in the Daily News & Analysis the letter to Mr. Manmohan Singh states, „The sudden and unprecedented move in the Bill has undermined confidence in the policies of the government of India toward foreign investment and taxation, and has called into question the very rule of law, due process and fair treatment in India.“

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