New US ambassador Powell slams ‘retro tax’ move

The US on Friday officially came down on India's newest taxation proposals, especially the move to impose a tax with retrospective effect on foreign deals which involve Indian assets.

In her first public speech as the new US ambassador to India Nancy J Powell, who replaced Robert Blackwill earlier this week, criticised the government for ''several recent policy decisions that cause significant concern and dampen India's investment climate sentiment.

''The adoption of manufacturing policies discriminatory to foreign companies and the inclusion of retrospective tax provisions in the finance bill [part of finance minister Pranab Mukherjee's annual budget proposals] are two examples,'' she said.

Even as she spoke, Mukherjee sought to assure Parliament on Friday that the proposed amendments to the tax laws on foreign direct investment. His assurances, however, appeared a little hollow, with governments now joining multinational companies in blasting the uncertainty of the Indian tax regime and particularly the latest effort to introduce a retrospective tax on transactions between foreign companies signed abroad.

The move is seen as mainly aimed at collecting close to Rs12,000 crore from UK telecom major Vodafone Plc in wealth tax over its 2007 purchase of Hong Kong-based Hutchinson Whampoa's share in what was then Hutchinson-Essar. The Supreme Court early this year threw out the government's claim on the ground that there was no law to tax such transactions; whereupon the government promptly decided to change the tax laws with retrospective effect.

The finance minister told the Lok Sabha that the proposed amendments would not affect the double taxation avoidance agreements with 82 countries; and were meant to ''just clarify'' what is already there in law to remove ambiguity and provide certainty.