Is it right for the Central Govt to negotiate with Vodafone for tax liability ??

We were talking to a very senior tax lawyer from our country, he noted a very interesting thing, that, these days the central government is negotiating with the assessee ( especially foreign companies).

Income Tax should not be imposed by negotiations, and rather it should be derived from the corresponding Law in force. In a nutshell, Taxation Laws should not be ambiguous and be a source of hassle to companies whose focus gets deviated and hampers their growth which also affects the economy.

The famous Supreme Court ruling in favor of Vodafone which was reversed by way of amending its Tax Laws by way of Finance Bill 2012 had almost led to a belief among international investors that India’s policies particularly tax policies are not investor-friendly.

With Vodafone threatening to go for International Arbitration to seek justice, the Government has softened its stand on the case, giving them waiver of interest and penalties leviable on concealment of Income as regards Capital Gains on transferring their Indian subsidiaries to their subsidiary in Cayman Island and asked them to pay just the basic tax.

The total demand which stood at Rs.19, 900 Crore is now mellowed down to Rs.7900 Crore exclusive of interest and penalties.

Even this however is contested hotly, though Vodafone India non-executive Chairman, Analjit Singh agreed to mutual conciliation by way of negotiating talks with the Finance Ministry, instead of appealing to the International Arbitration.

The decision is likely to be made on 4^th June, 2013 by the cabinet.