Retrospective tax law has hurt the country as it scared away the investors, Finance Minister Arun Jaitley today said and stressed on the need for maintaining the standards of fairness in taxation.
Addressing the officer trainees of the Indian Revenue Service, Jaitley said taxes which are realisable have to be collected, but the taxes that are not realisable, should not be collected.
“If you ask me 4—5 years later, in Income Tax Act... did the provisions of the retrospective taxation help India or did they hurt India? My answer is very clear, they hurt India because at the end of the day we have not been able to collect those taxes and we scared investors away,” he said.
He was referring to the retrospective tax law brought in by the previous UPA government.
Jaitley said investors want stability and predictability and they don’t want to hit by a surprise that upsets the business planning and “therefore it is important that standards of fairness in taxation must be maintained.”
Under the taxation law, if a tax is payable it is payable, he said, while adding that “there is no compassion that he is an old man, she is a widow. So and so doesn’t have the means to pay... those are not considerations in taxation law“.
Jaitley further said that the law at times might imply that taxes are not payable and that might result in loss of revenue.
”... the difficulty is that, both in direct tax and indirect tax, at times we deviate from this principle and we think that it’s in the larger national interest to collect more taxes, and we become extra—aggressive, either in our interpretation process or even in the legislation process,” he said.
Jaitley told the IRS officer trainees that they should ensure 100 per cent integrity in order to ensure professional excellence.
“When in doubt, always go straight. If you lean either way without being straight, then you will unfairly cost the revenue or you may be unfairly taxing an assessee. Now that unfairness either way will have to be avoided,” he said.
The UPA regime had amended the Income—tax Act in 2012 to get powers to tax deals with retrospective effect. This law was used to raise a total tax demand of Rs 20,000 crore on UK’s Vodafone for its 2007 purchase of Hutchison Whampoa Ltd’s Indian assets.
The retrospective taxation evoked sharp reaction from both domestic as well as global investors.