Uncertainty over Vodafone India tax issue can harm foreign investment

India’s revenue office has threatened to seize Vodafone assets if the company doesn’t pay the tax bill.

Vodafone India tax issue can harm foreign investment
Vodafone India tax issue can harm foreign investment

Indian tax authorities have sent notice to the Vodafone India along with a warning that if due income tax of around 14,200 crores of rupees is not paid, its assets in India could be seized. Vodafone has been fighting Indian tax authorities for years over its purchase of the mobile-phone business in the country since 2007.

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While Vodafone has said it doesn’t owe the Indian government money because the transaction was conducted offshore, Indian authorities have sought to collect taxes on the deal because it involved the assets in the country.

There are arguments both in favor and against about Vodafone India and Indian authorities retrospective tax approach, however, the main point is uncertainty in doing business in India will only act as a deterrent in attracting foreign investment in India.

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Just 3 weeks before while addressing the business leaders of France and India in the presence of French President Francois Hollande, Modi said his government wants to ensure that foreign investors are clear about tax systems that will prevail in India over the next 15 years.

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Over unpredictability in the tax regime, he said,”Retrospective tax is a matter of past. That chapter will not be opened again. We are ensuring that neither this government
nor the future governments can open this chapter,” Modi told the India-France Business Summit. “Whosoever makes an investment in the country should know about the taxation system in the country over the next five years, 10 years, 15 years,” he said.

Letter from the Indian tax authority seems to undermine India’s PM statement and authority and will create uncertainty which will only deter foreign investment into India.

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