India is in talks with Vodafone Group Plc and Cairn Energy Plc to settle long-running tax disputes with them, a top government official said after the nation last week moved to abolish a rule on retrospective taxation scorned by investors.
"There are some informal discussions going on," Revenue Secretary Tarun Bajaj said in an interview with Bloomberg Television's Haslinda Amin on Monday. "I would not like to discuss them in public domain, but overall the answer to your question is, yes," he said when asked if the companies were willing to drop cases in international tribunals.
Dropping pending litigation or forgoing any interest or costs is the first step for companies to become eligible for exemption from the tax rule, which was introduced in 2012 and gave officials the power to go after M&A deals all the way back to 1962 if the underlying asset was in India. Besides opening room to settle disputes with Vodafone and Cairn, the move aims to support the economy's recovery by attracting investment.
Fund inflows are crucial to the success of the government's 1.75 trillion rupees ($23.5 billion) asset-sale program, which is key to containing the budget gap after the coronavirus pandemic hurt the economy.
"We have not been influenced by arbitration matters which are going on in various courts," Mr Bajaj said. "We want to give stability and certainty on taxation rates to foreign investors."
Spokespersons of Vodafone and Cairn Energy didn't immediately respond to separate requests for comment on Mr Bajaj's statement.
The litigants would find changes to the tax law useful, Finance Minister Nirmala Sitharaman said in Parliament. "I'm sure this will be appealing enough, and putting an end to this ghost which we have been carrying all this while from 2012," she told lawmakers.
Still, the retrospective taxation wasn't the only challenge facing companies in India.
Vodafone Idea Ltd., a joint venture between Vodafone Group and billionaire Kumar Mangalam Birla's conglomerate, faces billions of dollars in back fees to the government. The company suffered a setback recently when the nation's top court rejected petitions by telecom operators to reassess their dues. The demand is casting a shadow on companies, with the survival of some being threatened.
"It would make no sense for government to come and say that we give this relief and companies say that it is not enough," said Mr Bajaj. " I am sure the government will find a solution."
Other key points made by Mr Bajaj in the interview are:
- "If the economy does well, revenues automatically do well. But it's not something that I don't want to give up revenues. If it helps the economy I am OK to give up revenues," Mr Bajaj said
- A third virus wave could be a risk to the government's revenue targets, he said
- Fuel taxes in India are no higher than in western nations, and that a reduction in the levy is not going to make much difference to retail inflation, which has shot above 6%, he said