Q) One of the most controversial legal issues in India has been with respect to the power with the Government to make retrospective amendments in taxing laws. Critically examine the issue of retrospective taxation. (250 words)

Why this question?

  • The Permanent Court of Arbitration at The Hague ruled that India’s retrospective demand of Rs 22,100 crore as capital gains tax imposed on the British telecommunication company for a 2007 deal was “in breach of the guarantee of fair and equitable treatment”and it must cease seeking the dues from Vodafone. Thus the question.

Introduction: Governments often use a retrospective amendment to taxation laws to “clarify” existing laws, but it ends up hurting companies that had knowingly or unknowingly interpreted the tax rules differently.

Body: Discuss the following aspects

  1. Significance of tax for social scheme and fiscal health
  2. Tax avoidance by multinationals
  3. Tax terrorism: Retrospective taxation hurts foreign investors
  4. Ease of doing business: retrospective change downgrade India’s business environment

Way forward: 

  • Certainty of law for a stable tax regime for attracting FDI
  • Reform of taxation laws and Double Tax Avoidance Agreement agreements 

Conclusion: Summarize the above discussed points