Matters of taxation rarely ever get people worked up in India, unlike the US, where tax rebellion is often confused with common sense and slogans like ‘Read My Lips, No More Bush’ are the stuff of political instead of Brazilian wax campaigns. Yet, the 20 January judgment of India’s Supreme Court letting Vodafone off the hook for the Rs 11,000 crore it allegedly owed India’s Revenue Department has dismayed more than just Leftists who like raiding the rich.
In 2007, the Dutch unit of telecom multinational Vodafone bought a majority stake—67 per cent—in the Indian telecom firm Hutchison Essar from Hong Kong-based Hutchison Whampoa for about $11.1 billion. India’s tax authorities saw this as a purchase of domestic assets, and slapped Vodafone with a capital gains tax bill of about $2.2 billion for the deal, money that it said the buyer was supposed to deduct from the seller’s bounty for the profit made by it. However, there was a cup-n-lip slip: the shares that Vodafone got from Whampoa were of a holding company based in Cayman Islands called CGP that owned Hutchison Essar in India, and so, as the Supreme Court has ruled, the deal was beyond the jurisdiction of Indian taxes. The Government argued that it was an ‘indirect’ transfer of Indian assets and thus subject to domestic taxes. But an offshore deal is an offshore deal, goes the letter of the law, and that’s that. Deal with it.
Some have hailed the ruling as good news for foreign investment; the Judiciary has proved its independence in keeping the State from imposing itself on a deal beyond its legal reach, they exult. But many others are aghast; the globalised have been proved right in strutting around the arena as alpha players, they fume.
Is it just the globalised that are living it up, though? In a ‘socialist’ country that takes up to one-third of every salaried employee’s earnings away as income tax, it is worth asking why only one-fifth needs be coughed up on capital gains. This, after all, is how most megabucks are made, and that too without much hard work or obvious talent. Sure, some ‘capitalist’ exemptions do serve a truly valid purpose: on dividends, for example, since corporate tax is paid on those profits anyway; and on long-term capital gains of equity shares, a tax exemption that encourages household savers to turn into retail investors, a shift India sorely needs. But when megacorps trade multibillion dollar assets at multibillion dollar profits without paying tax (not even the easily-bearable 20 per cent), the last thing one can wax eloquent about is justice.
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Dear Sir,
This is the most ridiculous article I have read in a long time. Firstly, from the article it appears quite clear that you are not a lawyer and therefore you should have resisted the temptation of writing an article about a judicial decision, a very specialised area which requires some expertise i.e. minimal knowledge of law. Even ignoring that, your view on the subject matter is not even intelligent enough to be called a layman's view who has at least tried to understand the issues involed. It appears that the sole attempt in the article was to advocate a view which goes against the popular opinion but that in itself cannot be the reason to write and more importantly for Open to publish it. What ever happended to quality control and editorial checks?
The point is that you cannot be taxed as per the whims and fancies of tax authorities, no matter how 'socialist' your motives might be. Any taxation has to be in accordance with the rule of law. It is childish to say things like, "But an offshore deal is an offshore deal, goes the letter of the law, and that’s that. Deal with it." Please say that the next time you are thrown in jail for arguing with a policeman trying to extort money from you.
There has to be basis for a transaction to be taxed in India. As the Income Tax Act exists now, it DOES not cover such off shore transactions. That is what the court has held. If such transactions have to be taxed, government has to amend the IT Act, which it can very easily do and will most likely do. But till then, you cannot expect people who have invested in the country relying upon the law as it existed then to suddenly pay up huge amounts of tax, just because you now see an opportunity for levying tax on such transactions.
Please try to understand that a democracy is governed by the rule of law and do not attempt sad rhetorical poetry like, "....But when megacorps trade multibillion dollar assets at multibillion dollar profits without paying tax (not even the easily-bearable 20 per cent), the last thing one can wax eloquent about is justice."
You might be a decent journalist and I have not read your other articles but this pience is pathetic to say the least. Please acknowledge this and be careful about putting in some effort in reading and understanding issues before writing a smart ass article about it. It sickens me to read such an article in what is otherwise a pretty decent magazine.
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