Retrospection


By Global Tax Weekly

A couple of weeks ago, India was execrated by me after Cairn Energy announced it had resorted to some serious measures in order to settle a tax dispute, which, according to Finance Minister Arun Jaitley himself, is just one of almost 40,000 cases that were pending before the various income tax tribunals and courts. But, this week, the Government deserves praise for its sensible decision to follow the recommendations of the Shah Committee and not impose the minimum alternate tax on foreign investors retrospectively. Retrospection in the context of taxation is, unfortunately, something that is now associated with India, thanks to the previous Government’s tendency to resort to this unwise policy. It is a reputation that Prime Minister Narendra Modi’s Government is trying hard to shake-off, and it is making slow but sure progress towards this goal, in no small part because it has declined to use retrospective tax measures. Foreign direct investment figures have been encouraging. According to data released by the Reserve Bank of India, the manufacturing sector saw a 50 percent jump in FDI in 2014/15, reversing three consecutive years of declining investment. Total FDI was the highest in five years, reaching USD16bn. Nevertheless, India’s woeful rankings for ease of doing business and simplicity of taxation indicate that the path ahead is a long one for Modi. But at least he has put India on the right one.





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