Given how the government’s new-found reforms enthusiasm is as aimed at local businessmen as it is at foreign ones, it’s not clear just what’s happening at Vodafone. After then finance minister Pranab Mukherjee stunned everyone with a retrospective tax amendment to undo Vodafone’s victory over the taxman in the Supreme Court, the Prime Minister did his best to address the fallout. P Chidambaram was brought to the finance ministry and, among other things, he constituted a committee under tax-expert Parthasarathi Shome to examine the matter. Shome recommended against retrospective amendments and said, in any case, there was no justification for levying taxes on someone buying a company (Vodafone)—in anything, the tax had to be levied on the seller.
At that time, the buzz from the ministry was that a view would be taken on the Shome report within a week—it’s been months now, and there’s little indication of what the government is planning. More confusingly, as FE reported last month, while processing the Shome report, the government seemed to be working on a parallel track. While the government’s original review petition in the Vodafone case was dismissed by then Chief Justice SH Kapadia before he demitted office, the government has once again sought a dismissal of the original Kapadia ruling on Vodafone, this time under a new chief justice—the new petition has been filed in the context of another case involving Vodafone in the Gujarat High Court.
Indeed, while one arm of the government is looking at the Shome recommendations, the taxman was conducting a parallel dialogue on getting Vodafone to pay R14,000 crore as taxes and penalties on its $11.1 billion acquisition of Hutch’s India operations. And with that dialogue going nowhere, last week the taxman sent Vodafone a reminder on the need to pay the tax. Perhaps the government needs to clarify its stand on retrospective amendments so that investors know where they stand.