Market experts believe that the Supreme Court order absolving Vodafone of a huge tax liability (Rs 11297 crore) for acquiring Indian telecom assets will prove to be positive for mergers and acquisitions (M&A) in the future.
Direct tax code
“Though the order is important from a foreign direct investment perspective, it would be back to square one in case the government decides to tax overseas transactions under certain conditions in its Direct taxes Code (DTC) Bill expected in the Union Budget,” said Mr K Ramanathan, CIO – ING Investment Management.
“But the jury is still out whether such a bill taxing overseas transactions on Indian soil would receive parliament nod,” said a telecom analyst from Indian brokerage.
“Plus all international deals might not fall under the same bracket as that of Vodafone.”
Moreover, the government needs to factor in the apex court's order before it attempts to introduce any such condition in the DTC, said analysts.
Market-men said that this could pave the way for a Vodafone IPO as the company needs to raise funds for expansion. “Investments will automatically happen only when there is regulatory clarity on applicability of taxes,” said another telecom analyst.
“Vodafone is a cash rich company and a fierce competitor worldwide looking to increase its market share in India.”
However, experts spoken to were unanimous that this case would be used as a precedent for a number of other such cases stuck in the courts.
Firms would be more sensitive to tax implications of M&As in the future, they said.
Interestingly, Vodafone's listed peers, Idea Cellular, Bharti Airtel, MTNL, Reliance Communications and Tata Teleservices shed anywhere between 0.03 per cent and 2.52 per cent from their market price on the BSE last Friday.
However, analysts attributed this to value erosion on account of daily volatility.