Retrospective tax issue may be settled in this years’ budget

The four year old retrospective taxation issue should get a conclusion in this budget. So far, the government was repeating that it is supporting an investor friendly tax regime in India. If it is so, the hardest measure ever since the launch of economic reform is the retrospective provision given to section 9 (i) (i) of the Income Tax Act. There is no question that such an action has violated the principle of fairness in India’s tax regime.

Amendment to the section came after the revenue department loss tax claim of nearly Rs 11000 crore in the Vodafone case. The Supreme Court maintained that in its present form, the income tax Act doesn’t allows revenue department to tax Vodafone.

The amendment allows the tax authorities to tax a transaction that is related to the indirect transfer of an asset lying in India- and controversially with effect from 1962.

There is no question that the government has the right to create tax laws retrospectively. But such a step reveals the weakness of the tax system and is a violation of the right of tax payers to make tax planning.

The Shome Committee observed that every tax law should be prospective.

Now it is the turn of the government to make its stand very clear before being too late. It is not just revenue but also the dignity and certainty of the tax system that matters. Hence, this years’ budget gives an opportunity to correct the errors of the past.