JOIN USA debatable legacy: Pranab Mukherjee's attempts to change face of corporate taxation as Finance Minister
Former Indian President Pranab Mukherjee tried to change the face of corporate taxation in India -- for good or bad, it is debatable.
In his last budget as the finance minister, he had amended Income Tax Act in 2012 with retrospective effect making offshore deals taxable in India after the Supreme Court ruled in January that year that Vodafone’s transaction was not taxable here.
The government's tax dispute with Vodafone Plc revolves around its purchase of Hutch Essar in 2007 for $11 billion.
The tax dampened the mood of the foreign investors looking to India as an investment destination.
"Since the retro tax was introduced without any preamble and was a reaction to the Vodafone tax issue, it impacted the sentiment of FDI investors for some time. But the fact that the retro tax was not repealed even after protests proves that it was also covering up for some of the inadequacies in the Income Tax Act," said Mohan Lavi, Bengaluru-based Chartered accountant.
Tax experts also believe that it plugged the loopholes for tax evasion by foreign companies.
"Pranab Mukherjee introduced retrospective taxation to protect the fiscal and national revenue interests of the country in case of cross border deals. After this momentous decision, India Inc realised they have to tread carefully when navigating the fine line between tax evasion and avoidance," says Mrin Agarwal, Founder, Finsafe.
However, many in corporate India blame Mukherjee's introduction of retrospective tax as the reason for economic slowdown in India.
Infact, Former Planning Commission deputy chairperson Montek Singh Ahluwalia, in February this year, had said he had advised former Prime Minister Manmohan Singh and finance minister Pranab Mukherjee against the controversial retrospective amendment to the Income Tax Act in 2012 meant to bypass a Supreme Court verdict and nail British telecom giant Vodafone in a tax case.