Indian Tax Laws to Be Changed Following Vodafone Settlement

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India's Finance Minister P Chidambaram has announced that the government will pass changes to its Income Tax Act but will have to wait until the Vodafone tax dispute is settled before it can do so.

The IT Act has been increasingly controversial due to the number of legal challenges to companies over taxes that are being filed and the confusing situation left following the government's retrospective law change last year.

"My proposal is let's find a possible solution to the Vodafone dispute and then go to Parliament with the amendment saying this is the possible solution that we have been able to arrive at tentatively. Please amend the Act so that we can implement it," he told reporters.

Vodafone is still fighting the USD2.2 billion tax demand which it maintains should not be paid although it is understood that the government and the company are seeking a face-saving compromise to end the dispute.

A possible difficulty though is the recent views of the country's Attorney General who ruled that any changes to the IT-Act would have to be passed before a settlement with Vodafone as otherwise Vodafone would be in violation of the law, as it stands at the time of the settlement.

The government may have to pass another quick law to amend the recent amendment to permit a settlement to be legally approved.

The retrospective change in the tax laws spooked investors and the government has been working to reassure them that the country's legal and tax code is reliable enough for investors.

A more measured amendment to the IT-Act passed by the government to tidy up the mess is being seen as necessary not just to clean up the legal code but also to reassure foreign investors.

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Tags: vodafone  India 

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