Amid the continuing turmoil in the Indian telecom sector, the US-based Tax Executives' Institute (TEI) has written to Prime Minister Manmohan Singh and finance minister Pranab Mukherjee protesting the proposed retrospective change in rules to bring overseas transactions involving Indian assets since 1962 into the tax net.
"A government is free to change its tax policies, but fairness demands that the change should be prospective [not retrospective] where the changes will have a significant negative effect on taxpayers," said TEI, which claims to represent 3,000 of the largest companies from across 130 countries.
Stating that the power to amend tax laws retrospectively should be exercised with restraint, the TEI in its letter said, "Regrettably, the appropriate restraint is missing from the Finance Bill 2012, some provisions of which would retroactively change the tax law of India as back as 1962.
''Many countries have rules that forbid such retroactivity or have through other means indicated that retroactivity is not a course that will be used by their legislator. Retroactive rules will serve to cause a downturn in global economic activities,'' the TEI letter to the government said.
The move to retrospectively tax foreign transactions is seen to be mainly aimed at British telecom major Vodafone, from who the government is seeking almost Rs12 crore in wealth tax over its 2007 deal to acquire Hutchinson Whampoa's stake in what was then Hutchinson-Essar for $11 billion. The amendment seeks to reverse a Supreme Court ruling in the tax case in favour of Vodafone. Subsequently, the apex court also rejected a review plea filed by the government.
Early this month, as many as seven global trade organisations wrote to the government that its move to retrospectively tax certain foreign transactions would hurt investment. Vodafone Plc's chief executive Vittorio Colao also wrote to Prime Minister Manmohan Singh that ''arbitrary and punitive retrospective treatment'' of Vodafone will tarnish India's image as an investment destination.
The issue was also raised by UK's Chancellor of the Exchequer George Osborne in a meeting with finance minister Mukherjee.