Vodafone have to pay tax once Parliament amends IT Act: FinMin
New Delhi: British telecom major Vodafone will have to pay over Rs 11,000 crore tax, once the amendment to change the Income Tax Act is approved by Parliament, a Finance Ministry official said Wednesday.
"They (Vodafone) will have to automatically pay the tax after approval of the amendments to the Finance Bill by Parliament. We don't need to send fresh tax demand notice to them," a Finance Ministry official told media.
The government yesterday refunded Rs 2,500 crore along with 4 percent interest to Vodafone following dismissal of its review petition against January 20 order by the Supreme Court.
The government had raised a Rs 11,000 crore withholding tax demand on UK-based telecom firm for its USD 11 billion acquisition deal with Hutchison Essar in 2007.
With an aim to clarify the "intent" of the Income Tax 1961 on taxation of overseas deals involving domestic assets, Finance Minister Pranab Mukherjee in his 2012-13 Budget has proposed to amend the law with retrospective effect, to ensure that such deals are taxed.
"You can only tax on the basis of existing law. We have no right to tax them, current law will prevail so long law is not changed," Law Minister Salman Khurshid had said yesterday after a meeting of senior Cabinet Ministers following dismissal of review petition by the apex court.
According to the Finance Ministry official, "an important question is about equity in taxation. While ordinary tax payer pays its taxes honestly, those who have huge wealth do not pay taxes by taking recourse to tax avoidance through creation of
multiple structures and routing their investments through low tax and no tax jurisdiction."
In the USD 11.2 billion deal in May 2007, Vodafone had acquired 67 percent stake in the Hutchison-Essar Ltd (HEL) from Hong Kong-based Hutchison Group through companies based in the Netherlands and Cayman Island. On industry concerns that retrospective amendment to the tax law would create negative sentiments among foreign investors, the official said the apprehension is "not correct".
Foreign Direct Investment (FDI), he said, "is not primarily dependent upon tax, but is more governed by aspects like huge domestic market, low cost of operation, low labour cost and huge skilled manpower".
Finance Minister Pranab Mukherjee recently said the move was not merely to prevent erosion of revenues in present cases but also to prevent the outgo of revenues in old cases.
Illustrating the point, he had said that suppose the government had collected taxes in such cases during the last 10 years and did nothing after the Supreme Court judgement, companies would demand refund of the tax paid by them.
At post-Budget briefing, Finance Secretary R S Gujral had said the amendment could fetch Rs 35,000 to Rs 40,000 crore.
The Finance Ministry has said that "intention of the legislature on the initial stage was very clear that the transactions like Vodafone, are subject to taxation in India".
As per experts, the changes in the Income Tax Act will have a bearing on about 500 overseas deals of similar kind.