Narendra Modi government pledges to end UPA government's record of 'tax terrorism': Arun Jaitley

NEW DELHI: India may set up a panel to resolve legacy tax cases that have revived allegations of ‘tax terrorism’, making it difficult for the government to meet its pledge to boost investor sentiment.

“I am considering a high-level committee to explore what can be done to resolve the past, and move beyond it in a way that would provide real predictability and certainty to investors,” Finance Minister Arun Jaitley wrote in the Financial Times of London, saying the issue was damaging the government’s reforms credentials.

“This committee will be instructed to report back expeditiously so that early actions can be taken,” he said.

The government has been on the back foot after assessing officers slapped minimum alternate tax (MAT) on foreign portfolio investors on the capital gains made by them in India.

The FM said the Modi administration had “pledged to end the previous Indian government’s record of tax terrorism” but it has not been “entirely successful in convincing investors of the fairness of our tax system”.

The finance ministry told Parliament on Friday that 68 notices involving a total tax demand of Rs 602 crore had been issued, but that the numbers could rise as assessing officers can open cases going back six years. “New cases of unexpected tax demands have cropped up, the most recent one being MAT,” Jaitley wrote, as he listed measures the new government had taken to make India’s tax administration friendlier.

In the Budget for the current fiscal year, the government had said MAT cannot be levied on capital gains, but made the proposal prospective. This means assessing officers can levy tax on such gains made by foreign investors in previous years.

The demands are based on a decision of the Authority for Advance Rulings and the government is not keen to amend the law retrospectively to provide relief.

“All of the disputes now attracting attention are legacy cases: tax demands arising from actions that the tax authorities and the judiciary took before we came to power,” Jaitley wrote.

“We have had little choice but to respect these decisions. The rule of law cuts both ways. We cannot say it is undermined when we take retroactive actions, and at the same time seek to override, retroactively, the decisions of our institutions,” he wrote, defending the decision to make the relief prospective.

The government has also clarified that the tax will not apply to investors from countries such as Mauritius and Singapore with which India has double taxation avoidance agreements (DTAAs). It has instructed tax officials to dispose of any such relief claimed by investors within a month. The demands can also be appealed in the courts.

Jaitley said even though these were legacy issues, the government was keen to put an end to them. “We have fashioned tax policies for the 21st century. Our tax administration cannot afford to lag behind. We will not let it,” he said.

A retrospective tax amendment dating from 2012 has also led to many companies being asked to pay large amounts of money.