Our government follows it literally! It has chosen to revise the tax laws from back date. The law in question relates to capital gains on sale of India based assets, when the transaction happens between two foreign entities. We are not debating whether the change is right or not, I personally think it is right. However, the bigger question is whether the government should change this from past or not!
It is akin to government making changes to the motor vehicle act, mandating that all vehicles should be driven on the right side of the road instead of left . Imagine these changes are made with effect from 1960. As a followup, the government sends penalty notice to all the people, who owned any vehicle since 1960, since they have been driving on the wrong side of the road. To soften the blow, government says, the normal penalty is Rs500 but we will only charge Rs250 to the people who have been driving on the left prior to April of this year! What generosity!
It does not take a rocket scientist to figure out that this is nonsensical? So do we assume that the top policy makers and bureaucrats are idiots? I am tempted to believe it, however, the situation is probably more complex than what seems on the ground.
Here's what I think is the core issue. Government does want to tax sales of any India based asset, even if the ownership of the asset changing hand lies outside India. Fair so far. I think it also does not want to tax past transactions(I would like to give it a benefit of doubt). Here's the catch, there probably are cases, in the past, where such transactions were taxed. Supreme courts ruling in Vodafone's case would have allowed such companies, who paid taxes in the past, to come back and claim refund. Government, by bringing in this law, with retro effect, is covering its behind.
Government is between a rock and a hard place! If it does not bring in the legislation from back date, it is vulnerable to refund claims by companies, who can cite Supreme Courts' ruling in Vodafone's case. If it does, it vitiates the investment environment! What should it do?
What is your vote?
Very Complex Issue sir....Well back-dated tax is certainly a bad idea...bcoz this was govt.'s vulnerability and it should not be from back date....So we can take it in this way that if companies ask for refund....Then it could be treated like a fine to the govt. :-)....but overall, very tricky situation....Thanks for raising this sir..
ReplyDeleteit indeed is a complex issue, with ramifications that run wide and deep!
ReplyDelete