Taxation and industry experts cheer the potential withdrawal of retrospective tax

• The retrospective tax was introduced by late former president Pranab Mukherjee in 2012.
• It enabled the government to tax profits from earlier years even though they were not taxable at the time.
• The bill is yet to pass in the parliament, nonetheless, it has brought some cheer among industry and taxation experts.

The government of India has decided to withdraw the controversial retrospective tax, which was first introduced by the late former president Pranab Mukherjee (the then Finance minister) nine years ago, in 2012.

The amendment to the Income Tax act enabled the Indian government to impose tax on any capital gains resulting from the transfer of shares from a foreign entity, whose assets were located in India. In other words, the government could tax profits from earlier years — back to 1962 — even though they were not taxable at the time.

The policy impacted companies like UK-based Cairn Energy and telecom giant Vodafone.

India’s Finance Minister Nirmala Sitharaman introduced ‘The Taxation Law (Amendment) Bill, 2021 in Lok Sabha on Thursday, August 5. It also said that the government would refund the money collected to enforce such levies.

The bill is yet to pass in the parliament. Nonetheless it seems to have brought some cheer among industry and taxation experts.

Retrospective Tax Law To Go, Refunds Possible For Cairn, Vodafone - kudos to Modi Government for repealing this contentious law that was Pranab Mukherjee’s folly. — Kiran Mazumdar-Shaw, founder and chairperson of Biocon Limited

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, CEO of government think tank NITI Aayog

It's something that all you taxpayers expect you to live with. No taxpayers are ever happy to be imposed a tax on this past activity. You have to do your tax payments every year, as you earn the income, as you make the sale. Nobody wants to be surprised — three, four, five years later— by some government officials, coming through a door and saying that you have to pay an extra tax on what you did five years ago. So there's no country in the world where Retrospective taxation is a principle that is to be encouraged. To my knowledge, if the only rare exception. countries adopt the policy of retrospective taxation. — Satya Poddar, Tax Policy Advisor at EY

This is definitely something which will solve many things particularly some of the things. So to that extent it's really pragmatic. We obviously need to get into details of how it will pay out. But, on the outset this is a welcome move and I'm sure it will be appreciated around the world. This issue, as you know, on this indirect transfer has been a matter of debate that has taken place regarding India, all around the world. So I think this is something that could be seen as a step in the right direction. And certainly a very welcome move. — Rajeev Dimri, Head of Tax, KPMG

This is indeed a very progressive step, undoing something which has been a sore point for investors but has not yielded anything to the government. — Dinesh Kanabar, CEO, Dhruva Advisors

“Any existing demands are also proposed to be nullified subject to withdrawal of pending litigation and the taxpayer agreeing to forego interest, costs and damages. Refunds too shall be handed out without interest. This is indeed a very pragmatic step by the Government and should help it contain the withspread litigation in cases similar to Vodafone and Cairn. A worthy battle to lose. — Kumarmanglam Vijay, Partner, J Sagar Associates

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