'Retrospective taxation will demoralise firms'

'Retrospective taxation will demoralise firms'

Finance Minister P Chidambaram’s advisor Parthasarathi Shome has said that the government should not go for retrospective taxation as it creates a deterrent for such companies from performing.

Talking at The Institute of Chartered Accountants of India – International Tax Conference, Shome said, “We should ideally have prospectivity and we should not go for penalty.”
Vodafone is facing a tax liability of Rs 11,200 crore for the purchase of Hutchison Whampoa's stake in its Indian telecom business Hutchison Essar in 2007. The government had said that Vodafone had concluded the Hutchison deal abroad — in the Cayman Islands — to evade taxes.

Soon after Vodafone concluded its deal with Hutchison Essar in 2007, the Indian Income Tax (IT) department sent a notice to Vodafone Essar with a tax demand of Rs 11,200 crore ($2.6 billion), claiming that the merger is taxable as the assets lie in India.

“If some company gets certifications from chartered accountants and then you can’t go back and change it retrospectively,” Shome explained.

“I believe that ultimately if we have to have tax assessments and if we have to have non-unjust tax assessments and on top of that if we want to minimise tax evasion we must be clear in our rules.” Earlier, a committee set up under Shome had said that either the retrospective tax amendment should be withdrawn or penalty, if covered under taxes should be waived off.

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