FM explains his concept of Retrospective Taxation and Stagflation
WHILE replying to the discussion on the Finance Bill, the Finance Minister Arun Jaitley said,
Assuming there is a tax collected over a period of 40 years and the tribunal comes to a finding that there is some technical flaw in this, are we going to refund 40 years of taxation already collected? Therefore, we retrospectively legislate to legitimise what has already been collected. That is a sovereign right. So, I cannot be faulted for saying that Parliament has a sovereign right. But I have said, as a policy the present Government will not use that right to create new liabilities. That is an assurance we wanted to give to investors within the country and investors outside so that we are able to assure people of a stable tax regime.
Stagflation: It is actually a contradiction in terms. If you have stagnation, that is normally a sign of recession because there is no economic activity. In inflation, the money supply is increased. So, there is a lot of activity otherwise. But there are rare cases and that is why this term ‘stagflation' was coined to indicate that you have a slowdown in the economy and inflation at the same time; and therefore it was referred to as stagflation. I think, it will be too extreme to say that we had reached that situation. Our growth had slowed down but that there was stagnation may be perhaps an overstatement. It is this slowdown which we really need to fight today.