10-08-2021 | 18:06 PM
Retrospective Taxation
Context:
Recently, Union Finance Minister introduced the Taxation Laws (Amendment) Bill in the Lok Sabha to nullify the tax clause provision that allows the government to levy taxes retrospectively.
The bill seeks to withdraw tax demands made using a 2012 retrospective legislation to tax the indirect transfer of Indian assets.
Key Highlights
The Bill says that it is argued that such retrospective amendments militate against the principle of tax certainty and damage India’s reputation as an attractive destination.
The country today stands at a juncture when quick recovery of the economy after the COVID-19 pandemic is the need of the hour and foreign investment has an important role to play.
The Bill proposes to do away with retrospective taxation on the sale of assets in India by foreign entities executed before May 2012, with a caveat, the companies that will benefit from the amendment must withdraw all legal cases against the government and forfeit interest, costs and any damages.
The government, on its part, is willing to refund any tax dues it may have collected or seized.
About Retrospective Taxation:
Retrospective Taxation allows a country to pass a rule on taxing certain products, items or services and deals and charge companies from a time behind the date on which the law is passed.
Countries use this route to correct any anomalies in their taxation policies that have, in the past, allowed companies to take advantage of such loopholes.
Apart from India, many countries including the USA, the UK, the Netherlands, Canada, Belgium, Australia and Italy have retrospectively taxed companies.
Background
The retrospective tax law was introduced through the Finance Act, 2012 after Vodafone won a case in the Supreme Court against the I-T department’s demand of ₹11,000 crore in tax dues.
This law became necessary after the Supreme Court, in 2012, ruled that gains arising from indirect transfer of Indian assets were not taxable under existing laws.
