Not contesting Vodafone verdict is right decision
The Union Government's decision to not challenge a Bombay High Court verdict in favour of telecom major Vodafone, in the matter of a dispute over share transactions, makes eminent sense. As the Minister for Telecommunications Ravi Shankar Prasad said, the Government has decided to avoid “fruitless litigation”.
The Government's move may well be a pointer to what lies ahead for various other companies embroiled in similar avoidable disputes with the Government. It is no coincidence that the decision has come at a time when the Government is seeking to raise as much as Rs85,000 crore through the sale of spectrum — with nearly Rs20,000 expected to come in 2014-2015.
The Government's decision to let the ruling go unchallenged in favour of Vodafone in the Rs3,200 crore tax case, is expected to boost industry sentiments at a time when the Centre has been repeatedly emphasising that it wants to create an enabling environment for businesses to flourish in the country. The Vodafone case also underlines the needs for greater clarity in rules over issues that involve the transfer and sale of shares by firms to their parent companies based outside India. The scope of litigation is greatly minimised if there is this clarity and high levels of transparency in the implementation of the rules.
There also has to be a change in the mindset of policymakers and the bureaucracy which often begins its analysis with the assumption that the private entity is out to rob the exchequer and the people, and must, therefore, be contained at the start. The environment of suspicion must be dispelled. It is this mindset that had resulted in the massive outbreak of controversy over the retrospective taxation measures that the UPA Government had introduced.
While the Government failed to mop up any significant sum following this decision, it almost overnight vitiated the economic situation — which was already in a bad shape. Both Indian and foreign investors pulled back from committing money in the country. This led to a serious crisis of credibility and loss of image for the country in the global business community, impacting GDP growth as well.
Incidentally, it was Vodafone that became the most high-profile company to bear the brunt, though it later received relief from the Supreme Court. Still, the matter is far from settled, and is under arbitration. Indeed, the Rs11,200 crore-tax Vodafone had been slapped with, became a metaphor for retrospective taxation, drawing howls of protest not just from the firm but across trade and industry circles.
Such had been the impact that Union Minister for Finance Arun Jaitley recently acknowledged that the taxation measure had been a major trigger to set the economy back by several paces. He has repeatedly assured industry that his Government will not use the provisions. But one supposes industry will be happier if the provisions are done away with altogether.