BackFormer Chief Justice RC Lahoti chosen arbitrator in Vodafone tax dispute
Communications minister Ravi Shankar Prasad says govt will try to resolve tax rows with telecom companies
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New Delhi: India has named former Supreme Court chief justice R.C. Lahoti as the arbitrator in the ₹ 27,000-crore tax dispute with Vodafone Group Plc, as communications minister Ravi Shankar Prasad said the government will try to resolve tax rows with telecom companies.
“A lot of these cases (Vodafone, Nokia Oyj, etc) pertain to retrospective taxation. They have been prioritized. The government has been very clear that it wants clear and stable fiscal regime. Retrospective taxation is something that needs to be avoided," Prasad said, responding to a question on the issue. “As far as the solution is concerned, the finance ministry will speak to telecom ministry (on the issue)," he told reporters.
A finance ministry official confirmed that Lahoti had been chosen as the arbitrator in the Vodafone tax case. Lahoti served as chief justice of India between June 2004 and November 2005.
The tax dispute between the Indian government and Vodafone arose over the capital-gains tax related to the telecom company’s 2007 acquisition of Hutchison Whampoa Ltd’s Indian telecom assets. Vodafone acquired Hutchison Telecommunications International Ltd through the sale of a Cayman Islands-based firm called CGP Investments Ltd, which was a unit of Hutchison. There is another tax dispute between the two parties related to transfer pricing.
Last month, Vodafone said that it was abandoning concilliation talks and would start the arbitration proceedings against the Indian government over the tax demand. “Since Vodafone and the Indian government have been unable to find an amicable means of resolving the dispute, Vodafone has commenced an international investment arbitration as a way to achieve resolution," the company said in a statement on 7 May. It filed for arbitration on 17 April. Vodafone International Holdings BV filed for arbitration under the bilateral investment protection agreement between India and the Netherlands, questioning the government’s enactment of the retrospective tax laws in 2012 that made the telecom company liable to pay tax even after a favourable apex court judgement.
The Indian tax department said Vodafone should have withheld part of the amount as tax while paying Hutchison. Vodafone and the tax department approached the courts to resolve the issue. The Supreme Court, in its judgement in January 2012, said the deal was not taxable in India. Subsequently, the government introduced retrospective amendments to laws to bring such indirect transfer of shares under the tax net. It also introduced a validation clause that made Vodafone liable to pay tax in India despite the apex court’s judgment.
Sunil Jain, a partner at J. Sagar Associates, said the appointment of an arbitrator in the Vodafone tax dispute case sent a mixed signal on possible amendments to retrospective changes in upcoming budget. “If the government does away with the retrospective amendments, there will be no need for an arbitrator," he said.
Meanwhile, the new communications minister, who also holds charge of information technology, said electronic manufacturing would be a priority for the government in the coming months.
“It is estimated that demand for electronic goods will reach $400 billion in India and the electronics imports will surpass fuel imports," Prasad told reporters on Tuesday. “The area also has a employment potential for 2.8 crore people."
Prasad said his government would revive Electronic Development Fund (EDF) through which it will partner with venture capital firms investing in innovation in electronic manufacturing in India.
He added that priority would be given to establishment of a semiconductor fabrication unit as well as new electronic manufacturing clusters. He added that there would be eight new M-SIPS (Modified Special Incentive Package Scheme) in Ghaziabad (Uttar Pradesh), Ahmedabad, Vadodara and Gandhinagar (Gujarat), Nagpur, Nasik, Aurangabad and Thane (Maharashtra). In addition, the government has decided to establish eight new greenfield electronic manufacturing clusters in Bhopal, Bhubaneshwar, Hyderabad, Maheshwaram, Bhiwadi, Jabalpur, Hosur and Kakhanada.
Prasad said that he would personally oversee the revival of state-run telcos—Mahanagar Telephone Nigam Ltd and Bharat Sanchar Nigam Ltd.
“I will undertake a proactive role in monitoring performance of these two companies. I will have network operating system installed in my office which will monitor the performances of the towers (in all the circles). The circles with low performances will be questioned," Prasad said.
The minister also said that the government had, in principle, agreed to expand mobile number portability to allow users to retain their phone numbers even if they move to a different operating area, and is now awaiting recommendations of the Telecom Regulatory Authority of India (Trai).
Postal banking for greater financial inclusion in the country was also a priority area, Prasad said, adding that there were 155,000 post offices in the country with savings of more than ₹ 6 trillion.
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