Getting conciliatory PDF Print E-mail
Thursday, 06 June 2013 01:28
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Vodafone marks an important first step


Assuming Vodafone gets over its reluctance to enter into conciliation talks with the taxman in India instead of in a neutral territory like Singapore, this marks an important first step in reducing the tensions between investors and the government. Given that it won the case in the Supreme Court, Vodafone would naturally prefer not to pay even one rupee of the R19,500 crore tax demand, but now that the government is hell-bent on collecting the tax, a quick conciliation is Vodafone’s best bet. More so since, till the tax matter as well as those of its licence-renewals are not resolved, the company cannot even go ahead with its expansion plans or proposed IPO. What is even more important, once the two parties come to a settlement that is ratified by Parliament, the government has said it will amend the income tax Act to allow conciliation as a means to settle cases.

This is important for a variety of reasons. For one, Vodafone is not the only such case, there are many more overseas M&A deals including Sanofi Aventis-Shantha Biotech and AT&T-Idea Cellular that are on the taxman’s radar. Apart from this, with transfer pricing adjustments having risen from R44,000 crore in FY12 to R70,000 crore in FY13, tax arrears have also risen dramatically—direct tax arrears are up from R2.5 lakh crore in FY11 to R4.8 lakh crore in FY13.

Under normal circumstances that might not matter since, no matter how long it takes as taxpayers approach one court or the other, the taxman will get his dues. The problem, however, is that the taxman’s track record is remarkably poor as well. In the case of direct taxes, for instance, around 65% of the appeals filed are by the taxman himself. And in the case of appeals in various high courts and the Supreme Court, the taxman loses 60% of the cases—at the tax tribunals, the losses and victories are even. In which case, putting in conciliation as a permanent form of settlement in the tax statute will benefit not just individual taxpayers, it will benefit the taxman as well.


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