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Centre moves bill in House to stop retrospective tax:

GS Paper 2:

Topics Covered: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

 

Context:

The government has introduced the Taxation Laws (Amendment) Bill, 2021 in Lok Sabha.

 

The Bill aims to:

  1. Amend the Income Tax Act, 1961, and the Finance Act, 2012.
  2. Prevent the income tax department from raising tax demands retrospectively.

 

Implications:

  1. Now, no tax demand shall be raised in future on the basis of the said retrospective amendment for any indirect transfer of Indian assets if the transaction was undertaken before 28th May, 2012 (i.e., the date on which the Finance Bill, 2012, received the assent of the President).
  2. The demand raised for indirect transfer of Indian assets made before 28th May, 2012 shall be nullified on fulfilment of specified conditions.
  3. It is also proposed to refund the amount paid in these cases without any interest thereon.

 

Eligibility:

To be eligible, the concerned taxpayers would have to drop all pending cases against the government and promise not to make any demands for damages or costs.

 

What’s the issue? When was the retrospective tax introduced? What were its implications?

  1. The retrospective tax law was introduced through the Finance Act, 2012 after Vodafone won a case in the Supreme Court against the I-T department’s demand of ₹11,000 crore in tax dues.
  2. This law became necessary after the Supreme Court, in 2012, ruled that gains arising from indirect transfer of Indian assets were not taxable under existing laws.
  3. The retrospective tax provisions were also applied to Cairn, when it was exiting from Cairn India Ltd in January 2014. The initial demand was for ₹10,570 crore.

 

Significance of the move:

  • The move attempts to end long-pending disputes with foreign firms such as Vodafone Plc.
  • The move is also investor-friendly, and also brings to an end messy litigation and arbitration, especially with Cairn, which has seen the company staking claim to India’s overseas assets.

 

What is retrospective taxation?

  • It allows a country to pass a rule on taxing certain products, items or services and deals and charge companies from a time behind the date on which the law is passed.
  • Countries use this route to correct any anomalies in their taxation policies that have, in the past, allowed companies to take advantage of such loopholes.
  • Retrospective Taxation hurts companies that had knowingly or unknowingly interpreted the tax rules differently.

 

Insta Curious: 

Do you know what Flat Tax is? Read Here

 

InstaLinks:

Prelims Link:

  1. PCA- composition, functions and members.
  2. Are PCA rulings binding on parties.
  3. Clause 9 of the Bilateral Investment Treaty (BIT) signed between India and the Netherlands in 1995.
  4. What is retrospective taxation?
  5. Overview of UNCITRAL.

Mains Link:

Discuss the functions and significance of PCA.

Sources: the Hindu.