New Delhi: The Narendra Modi government announced on Thursday that the controversial retrospective tax reforms enacted in 2012, which had harmed India's image as an investor-friendly location, will be permanently buried.
In the Lok Sabha, the government introduced a bill to modify the Income-Tax Act of 1961 to eliminate retrospective tax amendments in I-T laws.
When passed, the bill is expected to put an end to India's legal battles with Vodafone Plc and Cairn Energy Plc, as well as 15 other cases where the I-T department had issued tax demands based on these retroactive tax adjustments.
The law is being tabled at a time when the government has lost international arbitration cases against Vodafone and Cairn Energy. Cairn Energy has gone so far as to seize Indian assets abroad in order to enforce its $1.7 billion award.
Finance Minister Nirmala Sitharaman noted in the bill's statement of goals and reasons that retrospective taxes remains a "sore point" for investors.
“In the last few years, important reforms in the banking and infrastructural sectors have been implemented, resulting in a favourable investment climate in the country. However, in a few situations, this retrospective clarifying amendment and the resulting demand has remained a sore subject with potential investors,” Sitharaman added.
“The country is at a crossroads where rapid economic recovery from the COVID-19 pandemic is critical, and foreign investment can help promote faster economic growth and employment,” she added.
India revised the I-T Act in 2012, under then-finance minister Pranab Mukherjee, to tax transactions involving the sale or transfer of shares that take place outside of India but have underlying assets in India.