How can we do business in India if your tax-related decisions are subject to summary reversal by the legislature? - TEI asks PM
TAX Executives Institute (TEI) says it was founded in 1944 to serve the needs of in-house tax professionals. With 7,000 members worldwide, today the organisation has 55 chapters in Asia, Europe and North America, collectively representing 3,000 of the largest companies around the globe. As the preeminent association of business tax professionals worldwide, TEI has a significant interest in promoting fair tax laws and policies at all levels of government.
In a recent letter addressed to Prime Minister Singh, Finance minister Mukherjee, Law Minister Khurshid and Commerce Minister Sharma, the International President of TEI says,
TEI has long opposed retroactive tax legislation as unfair to otherwise compliant taxpayers and harmful to the ability of businesses to plan and conduct their operations in reliance on the legal rules in effect when business decisions are made. The uncertainty resulting from the retrospective aspects of Finance Bill 2012 could adversely affect the willingness of businesses to commence or continue operations in India.
For a tax system to be fair and perceived as being fair, taxpayers must be able to rely on the law in effect when business transactions take place, expenditures are incurred and other taxable events occur. Therefore, except in extreme circumstances, tax legislation should be prospective.
TEI recognizes that a government is free to change its tax policies, but fairness demands that the change should be prospective where the changes will have a significant negative financial effect on taxpayers.
Reversing the outcome of decided cases on a retroactive basis exacerbates the uncertainty faced by businesses operating in India. How can taxpayers do business in India if their tax-related business decisions are subject to summary reversal by the legislature? Indeed, why would a taxpayer challenge an adverse decision of the taxing authorities in the first instance - and at considerable expense - if it cannot be assured that a successful judicial decision will stand? And what taxpayer would invest without hesitation in a country where the legality of tax assessments is not subject to independent judicial review?
In sum, the retrospective effect of proposed ‘Finance Bill 2012' generally, and its reversal of Indian judicial precedent in particular, would have a significant detrimental effect on foreign direct investment and business operations in India, upending the necessary predicate of a stable and predictable fiscal environment for business.