Narendra Modi’s efforts to bring in Foreign Direct Investment are bearing fruit but the big-ticket companies are waiting and watching regarding Vodafone’s alleged tax evasion. Vodafone is embroiled in a tax dispute over its purchase of Hutchison Essar Telecom services in April 2007. The transaction involved purchase of assets of an Indian company so the transaction, or part thereof, was liable to be taxed in India, according to the tax department.
A fierce corporate battle ensued in the courts. The then Finance Minister, Pranab Mukherjee, was so determined to recover the tax that the government changed the Income Tax Act retrospectively and made sure that any company, in similar circumstances, was unable to avoid paying tax by operating out of tax havens like the Cayman Islands or Liechtenstein. In May 2012, Indian authorities confirmed they were going to charge Vodafone about Rs. 20,000 crore ($4.5 billion) in tax and fines. The Congress party wanted to amend the amended Income Tax Act immediately after Pranab Mukherjee became President of India but the problem was that the President would have had to amend his own Act as Finance Minister and this was awkward. Multinationals inclined to invest in India are waiting for the amended Act to be amended. This can be done by a simple majority in Parliament. Sources disclose that former Finance Minister P Chidambaram has pointed out the issue to Finance Minister Arun Jaitley in a special meeting. Now the ball is in the Modi government’s court.