“We are concerned that the Budget measure will not just impact one company like Vodafone but will damage the overall climate for investment in India,” the Chancellor told reporters in New Delhi after attending the third annual bilateral Economic and Financial Dialogue with his counterpart Pranab Mukherjee.
In his recent Budget, Mr Mukherjee proposed arbitrarily changing the country’s laws to tax overseas deals going back 50 years. This revision, likely to be challenged in court, would oblige domestic and foreign firms to pay tax on any overseas transaction involving an Indian asset.
The Budget announcement came two months after India’s Supreme Court in a landmark judgment ruled that Vodafone would not have to pay the Indian authorities $2.2bn (£1.37bn) in tax on its $10.7bn takeover of Hutchison Whampoa’s local business in 2007.
Mr Osborne said India-UK trade had grown by a record 40pc over the past two years and Britain had become the second largest investor in its former colony. But the retrospective taxation proposal, the UK Chancellor said, had the potential to upset these investments, a sentiment that he forcefully conveyed to Mr Mukherjee, not “threateningly” but as “candid advice”.
“India needs a stable and predictable taxation structure,” Mr Osborne said, adding that the UK did not want Delhi to provide a “no-tax environment” but to facilitate investment by levying taxes in a foreseeable and reasonable manner.
The Chancellor, however said the imminent EU-India Trade agreement augured economically well for the UK, presenting impressive trade and investment opportunities.
Mr Osborne also said that Britain would continue to annually provide India £1bn in aid until 2015 despite its rising economic profile and Mr Mukherjee telling parliament last year that it amounted to “peanuts”.
“Even though India is doing well economically it is home to hundreds of millions of poor people and British aid was focused on augmenting maternal and infant health programmes,” Mr Osborne said.
On the recent selection by Delhi of France’s Rafale fighter over Eurofighter’s Typhoon in support of the Indian Air Force’s requirement for 126 multi-role combat aircraft, Mr Osborne maintained that the latter remained a more efficient and competitively-priced platform.
And though the UK respected India’s decision to opt for the Rafale, it would continue to support the Typhoon bid.
However, Mr Osborne’s meeting with Rahul Gandhi, MP and scion of India’s first political Nehru-Gandhi family who is widely considered to be the country’s prime-minister-in-waiting, was cancelled for unexplained reasons.
Meanwhile, seven foreign trade organisations with mroe than 240,000 members worldwide declared in a letter to the Indian government that the uncertainty spawned by its latest taxation proposals was leading to many re-considering investing in the country.
“The sudden and unprecedented move in the [Budgetary] bill has undermined confidence in the policies of the government of India toward foreign investment and taxation and has called into question the very rule of law,” declared the lobby groups, which include the CBI, the United States Council for International Business and varied Japanese groups.
This is now prompting a widespread reconsideration of the costs and benefits of investing in India, the letter stated, adding that the recent proposals were “inconsistent” with international law and created an “intolerable risk” of double taxation.
The letter accused the Indian government of proposing the taxation measures after it lost a series of tax rulings in court, most notably the Vodafone case.
PM Singh’s coalition is reeling under financial profligacy and the biggest budget deficit among emerging economies. It is also locked in tax disputes valued at more than £4.9bn with overseas companies. Financial analysts said a cash-strapped government was loath to make these payments.
News Source: Telegraph
