On June 9, President Pranab Mukherjee, while addressing a joint sitting of the Parliament, outlined the new government’s economic vision, and said it would “embark on rationalisation and simplification of the tax regime to make it non-adversarial and conducive to investment, enterprise and growth”.
The irony must not have been lost on those present for it was one of Mukherjee’s own decisions -- when he was finance minister in the previous UPA government -- during budget 2012 that not only sent shockwaves through India Inc but is also now perceived by many to have contributed greatly to the investor nervousness that followed during the subsequent economic downturn.
Then, the government had carried out a retrospective amendment to the Income Tax Act that resulted in the creation of multi-billion-dollar liabilities arising out of several business decisions taken in the past.
Key among these were tax demands that were served upon multinationals Vodafone, Shell and Nokia that ran into thousands of crores -- these were then contested and court cases ensued since.
Along with corporates, the BJP then rightly criticized the then government’s move, accusing it of indulging in “tax terrorism” and saying the decision to lay retrospective claims chased away jittery foreign investors.
Even during the election trail, Narendra Modi had said the government shouldn’t take decisions with retrospective effects, adding that such “defeated the purpose” of creating confidence in the economic system.
With BJP now at the helm, finance minister Arun Jaitley will now have a chance to walk the talk.
The issue was also reportedly a key discussion point in a recent meeting of corporate captains and the finance minister recently, with the former calling for a “non-adversarial and conducive tax regime”.
Already, there have been reports the government is likely to modify the controversial amendment that led the way to retrospective tax demands.
Any such move, while letting go of a claim of about Rs 30,000 crore for the government, would go a long way in boosting investor confidence in the country.
In fact, Vodafone India, one of the most high-profile victims of the retrospective tax demand, had recently made it clear it would consider coming out with an initial public offering once the case was settled.