Vodafone tax issue: Signs of rethinking

Telecom Lead India: Finally, mobile operator Vodafone is
set to get relief from Indian tax authorities.

Finance minister P Chidambaram has ordered a review of
tax provisions that have a retrospective effect.

The rethinking by the finance ministry will bring cheers
to the UK telecom giant. Vodafone is one of the few leading telecom players
which can commit huge funds for network expansion despite challenging market

Chidambaram on Monday said that he has directed a review
of the provisions to find fair and reasonable solutions to pending as well as
likely disputes between the tax department and the assessees concerned.

The main beneficiary from this rethinking process will be
the Indian telecom industry. If the tax issue affects Vodafone, it will
negatively impact several telecom equipment vendors which are relying on
network expansion of Vodafone in India and other markets.

The retrospective tax changes introduced in the 2012-13
Union budget had invited sharp criticism from the telecom industry.

Clarity in tax laws, a stable tax regime, a
non-adversarial tax administration, a fair mechanism for dispute resolution and
an independent judiciary will provide great assurance to insurance. The key to
restart the growth engine is to attract more investment, both from domestic and
foreign investors, according to Chidambaram.

The finance minister said the measures that the government announced on Monday
as well as other steps which it hopes to unveil in the short term would enable
it to raise the level of investment to 38 percent of gross domestic product
that was achieved in 2007-08.

If the government goes ahead with retrospective tax changes, the British
telecom major will be forced to pay Rs 13,000 crore in capital gains tax for
buying 67 percent stake from Hutchison. The tax department had argued that
Vodafone should have deducted tax before paying the amount to the Hong
Kong-based company.

However, the two companies said no liability arose as the
transaction took place outside India. The Supreme Court agreed with their
contention that the deal was outside the jurisdiction of Indian tax

The earlier finance ministry under Mukherjee introduced a clarificatory
amendment in the Finance Bill, arguing that the demand on Vodafone was part of
the fight against black money.

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