Retrospective tax on foreign transactions might lead to a conflict between the judiciary and the legislature, said Parthasarathi Shome, director and chief executive, Indian Council for Research on International Economic Relations (Icrier).
“Retrospective taxation gets into relative independence of three branches of the government. It (taxation) has to be prospective, not retrospective. It is even banned in some countries constitutionally,” said Shome, responding to queries on the government’s recent move to introduce retrospective taxation.
In January, Vodafone won a legal battle when the Supreme Court ruled it did not have to pay Rs 12,000 crore in taxes because the transaction took place between two foreign firms. The income tax department claimed tax on Vodafone’s acquisition of a nearly 67 per cent stake in Indian mobile operator Hutchison Essar. Subsequently, the the court declined to entertain the authorities’ plea to reconsider its January ruling. To avoid such instances, in Budget 2012-13, the government had proposed a retrospective change in income tax laws.
Shome said Shome said the tax rates on goods and services should be the same. “If you separate the tax rates for goods and services, don’t call it Goods & Services Tax. There should be a common base that includes everything, and if you want a higher rate for products, you can impose additional excises on these. It’s a global practice to have the same rate,” said Shome.