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Retrospective tax amendment will lead to resentment: Ex-SG
June, 04th 2014

The government will have to walk a fine line if it is really serious about reassuring foreign investors about the retroactive tax amendment. That's the word from former Solicitor General Mohan Parasaran. He has also warned that rescinding the order may blow up in the government's face.

Former finance minister and now President Pranab Mukherjee created global furore when he retrospectively amended the tax laws in the 2012-13 Budget. Now investors refer to the amendment - a knee jerk reaction to the apex court's blow in Vodafone tax battle - as ‘tax terrorism’

But Mohan Parasaran, who was the Solicitor General under the UPA regime, says rescinding the amendment will open a whole new can of worms.

Parasaran says, “The government can be bold and try to go to the parliament. But it is likely to cause resentment within the public. The common man's perspective on such developments is different from that of an economist, investor or corporate.”

Parasaran's solution is to leave the mess to the courts to clean up. After all, the retrospective amendment is already facing constitutional challenges before three high courts.

McLeod Russel has appealed against the tax in Calcutta High Court; IHC Mauritius and SABMiller have appealed in the Bombay High Court and Cairn India has moved the Delhi High Court.

Parasaran believes that the retrospective amendment will not survive these multiple challenges, but till the courts rule, the retrospective amendment remains the law of the land.

And as long as the law stands, the former Solicitor General says Vodafone’s new-found confidence in conciliation talks with the government may be a little naive.

“The I-T act does not provide for such a mechanism. And logically speaking, as long as the retrospective amendment holds field, where is the question of any conciliation or settlement, when the act speaks to the contrary.”

So the only headroom available to Vodafone may be to reach some kind of a settlement, and report the compromise to the adjudicating authority. But given the fact that both parties have to find a way to save face, this may be easier said than done.

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