British Prime Minister David Cameron today threw his weight behind UK telecom giant Vodafone, which is currently locked in a dispute with the Indian government over a tax liability of Rs. 11,200 crore for its acquisition of Hutchison Whampoa's Indian mobile business in 2007.
"The tax system has to be fair to all. Every company needs to know about the tax implications of any deal. If the tax system becomes completely unpredictable, it becomes totally damaging for the business," Mr Cameron said.
"The investment made by Vodafone in India is very valuable. A company like Vodafone brings in technology and creates jobs. I am happy that some progress is being made on the tax issue ... Vodafone is paying taxes and contributing to India. Vodafone and the Indian government are looking to sort out differences, and I am hopeful of a solution soon," Mr Cameron added.
The dispute became bitter after the Supreme Court, on January 20, 2012, set aside a Bombay High Court judgement asking Vodafone International to pay an income tax of Rs 11,000 crore on the Hutchison deal. The Supreme Court's order seen as a victory for Vodafone. In fact, the Supreme Court directed the tax department to return the Rs 2,500 crore deposited by Vodafone in compliance with an interim order.
This did not go down well with the government, and the then Finance Minister Pranab Mukherjee amended the Income-Tax Act, 1961, with retrospective effect to undo the Supreme Court's judgement.
Following this, international and domestic investors began to raise concerns about investing in India, after which the government appointed a committee under tax expert Parthasarthi Shome to look into the issue. The Shome committee suggested that either the government withdraw the retrospective tax amendment or waive the penalty.
The government has not yet taken a call on the suggestions of the Shome panel. The changes in the Income-Tax Act, however, are likely to be introduced in the coming Budget to be tabled in the Lok Sabha on February 28.
Meanwhile, the Revenue Department has issued a reminder notice to Vodafone asking it to clear the tax dues. The company, however, maintains that no taxes are payable and has already replied to the reminder notice from the tax department.
The revenue department, it is learnt, will soon be sending its reply to the representation made by Vodafone.
Last April, Vodafone had also threatened the Indian government with arbitration proceedings in its fight over the retrospective tax proposal.