Relief for big business

By deciding not to appeal against the pro-Vodafone order of the Bombay High Court, the Modi government has eased tax worries of foreign investors. British mobile company Vodafone was accused of under-pricing shares in a rights issue to the parent company and dragged in a Rs 3,200-crore tax dispute. The Bombay court ruled in its favour in October and the Cabinet on Wednesday, acting on the advice of the Attorney General, decided not to go in for appeal. Vodafone is not the only foreign company to benefit. Shell, IBM and Nokia, all multinationals, have tax cases pending in courts. If they too obtain favourable verdicts, the government would not challenge them since it has decided to accept all orders of courts and tribunals going in favour of the taxpayer.
The aim is to avoid tiring litigation which locks up huge amounts of tax arrears and scares away investors. But those supporting the decision taken by Pranab Mukherjee as Finance Minister to impose retrospective tax may see red in this pro-capitalist gesture of the Modi government.  Vodafone had earlier got a favourable verdict from the Supreme Court in a case concerning its purchase of 67 per cent stake in Hutchison Essar, which had prompted the previous UPA government to issue an ordinance empowering the government to tax companies with retrospective effect. This had led to a massive outflow of foreign capital. It was only after the change of government at the Centre that foreign investors returned to India in hordes. Much of the money, however, is parked in stock markets which can be repatriated any time.
To lure private investment in job-creating manufacturing and services, a congenial economic environment is required. The Modi government has opened up defence and insurance to FDI and reportedly cleared hurdles to operationalise the nuclear treaty with the US. The corporate tax relief decision may provoke individual taxpayers to demand concessions. The budget will be keenly watched for this. Though expectations are high, Finance Minister Jaitley will have to balance the pressure on finances with demands for tax giveaways.