Budget 2016 may address retrospective tax concerns

New Delhi: With retrospective taxation continuing to rile foreign investors, the Budget Monday may look to address their concerns with a view to resolving the legacy issues.

In an interview to PTI, Chief Economic Advisor Arvind Subramanian has said that the present government is taking "consistent steps" to deal with the legacy tax issues to regain investor confidence.

"Slowly, slowly they (government) are cleaning up the legacy issue. I think they will continue to do so going forward and hopefully so in the Budget. It's a long drawn agenda that we need to clean up tax system," he said.

The continuation of multi-billion dollar tax liability imposed by the previous UPA government using a retrospective legislation, has been a matter of concern for foreign investors who had hoped that the BJP government will quickly resolve them.

Earlier this month, the tax department took the unusual step of sending a reminder notice to Vodafone for payment of Rs 14,200 crore of taxes on an issue that is under arbitration.

Even after two years, the arbitration in the Vodafone case has not yet started in absence of appointment of a presiding judge on a three member arbitration panel.

The Rs 10,247 crore tax issue of Cairn Energy Plc of UK could manage to get a full panel constituted, even though the process started much later than Vodafone, only after the issue was brought to the notice of Prime Minister's Office.

Both Prime Minister Narendra Modi and Finance Minister Arun Jaitley have repeatedly stated that no new tax liability would be created using the retrospective law, the lingering of the disputes have not gone down well with foreign investors.

Many of them had hoped that the government may use the A P Shah panel, that had sorted out the contentious issue of levy of MAT on capital gains made by FPIs and FIIs, to resolve these legacy issues.

A top executive at a foreign company the easiest way to resolve these issues is to refer the pending cases to the Shah panel as they had done in the MAT issue and implement its recommendations.

Subramanian said the government had proactively resolved the MAT issue and is working to do so for the remaining legacy issues.