Share

Global businesses warn India over tax plan

Mumbai - International trade groups representing more than 250 000 companies have warned Indian Prime Minister Manmohan Singh that new taxation proposals by his government have led foreign businesses to reconsider their investments.

India’s federal budget last month outlined proposals that would allow authorities to make retroactive tax claims on overseas deals and bring in new anti-tax-avoidance measures, moves that have been criticised for further denting investor sentiment towards India.

The warning, contained in a letter from seven overseas business groups, is the broadest criticism yet by the overseas business community of an Indian government that has failed to enact economic reforms to spur investment and revive growth.

It was sent days before Britain’s Finance Minister George Osborne was to hold talks on Monday with his Indian counterpart.

“The sudden and unprecedented move... has undermined confidence in the policies of the government of India towards foreign investment and taxation and has called into question the very rule of law, due process, and fair treatment in India,” the groups said in a March 29 letter addressed to Singh and seen by Reuters.

“This is now prompting a widespread reconsideration of the costs and benefits of investing in India,” continued the letter. 

It was signed by bodies including the US-based Business Roundtable, the Confederation of British Industry, the Japan Foreign Trade Council and Canadian Manufacturers & Exporters.

The Business Roundtable is chaired by Boeing co-CEO James McNerney and represents companies with more than $6 trillion in revenue.

India’s reputation among global investors has taken a beating over the past year as the government has lurched from crisis to crisis, including a botched attempt to allow foreign supermarkets into the country and a long-running stand-off with South Korea’s POSCO over a $12bn steel plant.

Sluggish investment is partly to blame for slowing growth in Asia’s third-largest economy, which grew 6.1% in the December quarter, but the weakest in nearly three years.

Osborne was to meet Indian Finance Minister Pranab Mukherjee on Monday, and the issue of retrospective taxation on mergers outside India was expected to be discussed.

Increasing uncertainty

A long-running tax struggle between London-listed Vodafone Group, India’s largest overseas investor, and the Indian government has come to symbolise the perils to foreign investors in the country.

Vodafone won a five-year legal battle in January when India’s Supreme Court dismissed a $2.2bn tax demand from authorities over the British company’s acquisition of Hutchison Whampoa's Indian mobile assets in 2007.

That ruling was hailed by business groups as a victory for clarity in the country’s investment climate, which has suffered due to policy paralysis, regulatory uncertainty and widespread corruption allegations against the government.

But the proposal in the recent budget to retroactively impose tax on deals conducted overseas where the underlying asset is located in India would amend 50-year-old-tax laws and allow New Delhi to pursue tax on long-concluded transactions.
 
Parliament is expected to consider the proposals during the last week of April.

“Some of our member companies had already begun re-evaluating their investments in India due to increasing levels of controversy and uncertainty regarding taxation in recent years,” the letter said.

Vodafone said last week it was considering a number of actions after the proposal, which it said was “grossly unjust”.

Policy confusion in India’s telecom sector over the tainted allocation of mobile licences in 2008 has recently seen Abu Dhabi’s Etisalat announce the winding-down of its Indian operations.

Norway’s Telenor has also been embroiled in a dispute with its Indian partner Unitech, and has said it would seek to migrate the business to a fresh venture with a new partner.

The tax proposal, if written into law, could also affect Kraft Foods' 2010 acquisition of Cadbury’s Indian business and deals involving Indian assets sold by AT&T and SABMiller’s purchase of Fosters.

In the letter also sent to the Indian finance minister, the business groups said a plan to expand the definition of “royalty” retrospectively to 1976 would affect companies such as Ericsson.

“There appears to be an assumption, often expressed by Indian tax authorities, that India’s ability to attract foreign investment is not affected by its taxation policies and practices. This simply is not the case,” the letter continued.

“India will lose significant ground as a destination for international investment if it fails to align itself with policy and practice around the world,” it said.
We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.93
+0.0%
Rand - Pound
23.89
+0.0%
Rand - Euro
20.39
+0.2%
Rand - Aus dollar
12.33
+0.1%
Rand - Yen
0.13
+0.0%
Platinum
908.05
+1.2%
Palladium
1,014.94
+1.3%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
+1.0%
All Share
74,536
+0.8%
Resource 10
57,251
+2.8%
Industrial 25
103,936
+0.6%
Financial 15
16,502
-0.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders