Vodafone: No rash action, says FM

The government on Monday said there will be no rash decision on the Vodafone tax issue involving over Rs 11,000 crore, giving the much needed reprieve to the British telecom major and similar foreign merger and acquisition deals involving domestic assets.

“The IT officials and are not going to act rashly. These are not small amounts on which you can take a rash decision,” Finance Minister P Chidambaram said after a meeting with direct tax commissioners here.

He was replying to queries if tax officials would send notice to Vodafone for tax collection following amendment in the Income Tax Act with retrospective provisions.

The Vodafone tax issue has emerged as a critical issue for the government after the move to retrospectively tax such mergers and acquisitions, drawing criticism from governments across the globe and dealt a severe blow to overseas investors. Earlier this year, the Supreme Court too had ruled that the transaction was offshore and not liable to tax in India.

“There is a Supreme Court judgement, there is section 119 (of Finance Act)... There is opinion of the Attorney General. All this has to be studied by the assessing officer and his supervising officers. In the meanwhile, we will get the Shome Committee report also,” Chidambaram said.

The Income Tax Department on October 22, 2010 passed an order determining a tax liability on Vodafone, which pertains to purchase of Hutchison’s stake in Hutchison-Essar by Vodafone for $11.2 billion in 2007 through a deal in Cayman Islands. The Department had also passed an order imposing a penalty of Rs 7,900 crore in April, 2011.

However, the penalty demand was not enforced in view of a Supreme Court’s direction dated April 15, 2011.

Chidambaram also expressed hope that the Centre will achieve direct tax collection target of over Rs 5.70 lakh crore in the current fiscal and said the government was aiming to regain the Tax to GDP ratio of 12 per cent.

The finance minister pinned his hopes on a robust tax collection in the second half of the fiscal year as the tax collection has not shown any handsome increase so far this year.

Growth in both personal tax and corporate tax collections in the first four months (April-July) of the current financial year decelerated, though they remained above budget estimates. April-July period witnessed a decline in the growth of corporate tax collection by about 1.5 per cent even as the gross direct tax collection in the same period rose only 4.68 per cent year-on-year.