Centre moves to redact retrospective tax law, experts welcome move

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The Lok Sabha passed the Taxation Laws (Amendment) Bill, 2021 on Friday. Finance Minister Nirmala Sitharaman introduced Taxation Laws (Amendment) Bill in the Lok Sabha on August 5, 2021. The bill seeks to bury the contentious retrospective tax law which was introduced in 2012. The law was used to raise large tax demands on foreign investors like Vodafone and Cairn Energy.

With this amendment, any tax demand made on transactions before May 2012 shall be dropped. The taxes already collected will be repaid, without interest.

Experts have welcomed this move by the government. Though some have also expressed contentions.

The IT Act amendment to nullify the regressive retrospective tax law introduced in 2012 is a bold and hugely positive development. It goes a long way in enhancing our global credibility and predictability, making India even more friendlier to the global investment community 🇮🇳

— Amitabh Kant (@amitabhk87) August 5, 2021

Dhruva Advisors’ Dinesh Kanabar appreciating the step said that the amendment for retrospective taxation yielded no revenues, only brought about disrepute to the government, according to a report in the Business Standard.

“As the amounts involved are humongous, not sure if the lack of interest and costs payable by govt will satisfy all litigants, ” Hitesh Kajaria of KPMG said. He told the media that he is not sure how will it work, and if the companies will agree to give up so much money as the demands are outstanding.

Pranav Sayta, tax partner, EY, said that amendment is a welcome step as it reiterates the importance of certainty in tax laws. This will build confidence in India as an attractive investment destination.

“The step could help restore India’s reputation as a fair and predictable regime apart from helping put an end to unnecessary, prolonged & expensive litigation,” Satya added.

Amrish Shah, partner, Deloitte India said that the addressing of foreign investors’ tax grievances, by removal of the retrospective tax levy on indirect transfers would go a long way in placing India as a more attractive investment destination. “It will rekindle the hope that there would be no longer any ghost of retrospective taxation norms being applied, “Shah said.

“This is indeed a very pragmatic step by the government and should help it contain the widespread litigation in cases similar to Vodafone and Cairn. A worthy battle to lose,” Kumarmanglam Vijay, partner, J Sagar Associates, said.