Make in India gets a shock - Vodafone gets Income Tax Notice
THE London Stock Exchange yesterday reported,
India may seize Vodafone's assets in the country if the company doesn't pay a disputed USD2.1 billion tax bill that's still undergoing international arbitration proceedings, Bloomberg reported, citing a copy of the notice that was sent to the company this month. Anil Sant, deputy commissioner of income tax, reportedly informed the company's Vodafone International Holdings Dutch unit of its dues in a letter dated February 4. The dispute traces back to Vodafone's USD11 billion acquisition of a 67% stake in the mobile-phone business owned by Hutchison Whampoa, now part of CK Hutchison Holdings.
The Telegraph reported,
India has warned Vodafone it may seize the telecoms giant's assets in the country if it does not pay a disputed 142bn rupee (£1.5bn) tax bill.
And Forbes magazine carried an article by Tim Worstall, a Fellow of the Adam Smith Institute in London. This is an article which everyone in Government from the Prime Minister down to the lowest babu should read.
Tim Worstall writes,
Just as the Modi government is trying to launch the Make in India campaign we've got the tax department trying, again, a tactic which will have foreign investors running for the hills. The government simply has to rein in that tax department, tell it that it lost the case in the Supreme Court and that that's that. Because if there's one thing that is going to stop foreign investment it's the idea that the bureaucracy does not feel itself burdened by having to obey the law.
What's worse in this case is that it is already in front of an arbitration tribunal, but the tax department is threatening to confiscate Vodafone's local assets before that ruling is issued, before the case is even fully heard. This, on top of the previous Supreme Court ruling, just makes a mockery of the aim of having foreign investment in production and manufacturing in India .
Foreign investment depends, obviously, on the belief of foreigners that they will be subject simply to whatever the law is at the time they do something. This has to be so. Who would invest in a place if you don't know who owns what, what taxes will be, what you are allowed to do or not, from one day to the next? This is why places like North Korea, or to a lesser extent, Russia, find foreign investment so hard to come by. If there is no rule of law, if the environment is simply subject to the whims either of the bureaucracy or even the politicians then no one will invest .
Thus, for the greater success of the much more important economic and public policy point, the attraction of foreign investors, the government simply has to grab that tax authority by the scruff of the neck and tell it to knock it off. The rule of law is vastly more important to the future than any amount of tax revenue from this or other similar cases.