BackDubious amendments
Dubious amendments
PremiumIllustration by Shyamal Banerjee/Mint
The manner in which the government inserted clarifications to the Income-Tax Act, 1961 that retrospectively make deals such as the Vodafone-Hutchison deal taxable, is very disconcerting.
Legally, of course, there is no bar on Parliament on carrying out retrospective amendments to civil laws. What the Union government proposed on Friday in case of the I-T Act, however, puts a question mark on the rule of law in India.
Explanation 5 in the Bill is clearly designed to overcome the judgment of the Supreme Court in the Vodafone case. In that case—which dealt with tax liability on Vodafone from its purchase of Hutchison’s mobile telephony business in India—the court had ruled that there was no tax liability on the company.
The dangerous implications of such changes in the IT law are two-fold.
For one, any foreign company planning substantial investments in India is certain to consider India a risky investment destination. In one swoop, Mukherjee has brought India down to the level of any dictatorship where investment and property can be expropriated merely by changes in “law". What makes the proposed changes downright egregious is that they come after the apex court had pronounced on the matter they deal with. The danger is that they will affect the credibility of judicial processes in India. In its efforts to get what it wants, the government is running grave risks.
Economically, too, the changes make little sense. India, today, is running a current account deficit of around 3.6% of gross domestic product. To plug this deficit, the country is increasingly reliant on short-term inflows instead of the more durable foreign direct investment (FDI). If approved by Parliament, they are sure to discourage FDI flows. With uncertain trade prospects, all that these “explanations" will do is to add another dimension to macroeconomic uncertainty. The task of managing the economy is likely to get more difficult now.
This is also a telling commentary on what the government thinks of the Indian economy. It continues to believe in the certainties of the 1970s when the country lived in a cocoon, untouched by changes elsewhere in the world. It is no longer such a place. Friday’s episode shows the government is yet to realize that.
Do retrospective amendments violate the rule of law? Tell us at views@livemint.com.
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