Seeking to reassure foreign investors, Finance Minister Arun Jaitley has ruled out any new retrospective taxation by the Narendra Modi Government, but made it clear that one or two earlier cases locked in court battles will be left to be determined by the judicial process. Jaitley, speaking at the Peterson Institute for International Economics here on Thursday, dwelt at length on the Modi Government’s broader approach to taxation matters, asserting: “We are well on our way to having one of the more modern tax systems in the world.”
Efforts are under way to make the tax department form something perceived as highly adversarial to one that is friendly to assessees through a process of rationalization, he said. On the ticklish issue of retrospective taxation resorted to by the Manmohan Singh Government that rang alarm bells through corporate boardrooms in India and abroad at the time, Jaitley said the BJP had all along opposed it and made clear it will never employ such an instrument.
The new Government has stuck to this promise and refrained from issuing any notice for retrospective taxation, Jaitley said but noted that it has been faced with a problem because of some “legacy” cases initiated by the previous government. “Some of these contentious cases, in all honesty, have not given me a single rupee of revenue so far. They’ve only brought a bad name to me,” he remarked, noting the Government will leave it to the courts to determine their fate.
In some of the old cases of retrospective action where the courts have quashed the tax demands, the government has opted not to go in appeal in the interest of larger tax stability and a better image for India’s tax administration. Pointing to the recent issue involving a demand of Rs40,000 crore by way of minimum alternate tax on capital gains from some foreign institutional investors, Jaitley pointed out that these FIIs had opted to take the matter to a judicial tribunal where they lost the case.
Now to expect that the State should intervene in the matter “looks a little difficult from my point of view”, he commented, stressing: “It may not be possible for any government (to intervene) after a court verdict.” Since it is a transient court verdict, the FIIs, however, have the option to continue on the legal route and go in appeal, he said. For the future, however, this tax has been abolished with effect from April 1, 2015.
Spelling out his tax vision for India, Jaitley said the effort would be to incentivize compliance. “They (the taxes) should be administered fairly, transparently, with minimum discretion, with no harassment of taxpayers but also ensuring that tax evasion is dealt with firmly,” he said, and spoke in favour of a wider tax net but with low rates.
Jaitley expressed confidence that the long-pending Goods and Services Tax (GST) Constitution Amendment Bill will be passed by Parliament in the coming weeks. It has been talked about for 10 years, but “we have done it”, he said, listing the various benefits of GST such as creation of a broad tax base while promoting transparency and reducing corruption. “There are estimates that implementing GST will increase growth by 2-3 percent in the medium term,” he said, adding: “The aim is to make the base as wide as possible. We have promised compensation for 5 years to the states (tapering in the last two) for any loss in revenue.”