That's why talking of UPA tax sins isn't enough
If the government has not been able to convince foreign investors of the fairness of its tax regime—as opposed to that of the UPA—as finance minister Arun Jaitley has lamented in a recent Financial Times article, it is because the NDA’s stance has been, at best, confusing. Despite the BJP’s campaign against the UPA’s tax terrorism, Jaitley chose not to scrap the retrospective law in his first budget, but cushioned the blow by promising to let existing cases be settled by courts/tribunals and by setting up a committee which would decide on the future use of the retrospective law. By not challenging the Bombay High Court’s decision on Shell and Vodafone, he lived up to one part of the promise. But he never brought the Cairn UK case to the committee though he could have considering the final tax demand was only sent last month. Even if you buy the government argument, bureaucratic as it is, that Cairn UK was an existing case and so couldn’t be brought to the committee, how does that reconcile with Cairn India being asked to deposit R3,000 crore in cash and a similar amount in guarantees while the case is being heard? It has been a month since Cairn UK asked for its good-faith negotiation period of 6-months to be waived so as to move on with the arbitration, but the ministry is yet to respond. Indeed, on various occasions, the revenue secretary has said—though not with specific reference to Cairn UK—that tax matters cannot be arbitrated. So, how is the case to be settled?
It is unfortunate that the finance minister should continue to say—in the FII MAT case—that this was the result of a ruling of the Authority for Advance Ruling (AAR) that went against the FIIs. As FE has pointed out earlier, AAR has given contradictory rulings on application of MAT for those without a permanent establishment in India—while one went against Castleton (incidentally, not an FII) in 2012, others went against the taxman. But, given the William Faulkner quote in the finance minister’s article—“The past is never dead. It is not even past”—the question is what the government plans to do now. It has not, in the 11 months it has been in office, made much headway in dealing with the R2.64 lakh crore of transfer pricing adjustments made by the taxman since FY06, something you would think would be top priority since investors look at pending tax cases and not which government slapped them. The question investors want answered is whether the new ‘high-level committee to explore what can be done to resolve the past’ will be any different from the ones in the past and whether its recommendations will be accepted in a manner that actually resolves a case. If not, it will sound like a re-run of an old movie.