Foreign investors remain concerned about India’s tax regime, which gives powers to the taxman to reopen tax cases going back to 1962. Retrospective taxation is a legacy of the last years of the UPA government, which was in power between 2004 and 2014.

This threat still exists on the books, despite finance minister Arun Jaitley’s repeated commitment that the NDA government would not retrospectively create a fresh tax liability and prime minister Narendra Modi having stated that the controversial retrospective taxation policy is a thing of the past. 

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Such high-level statements have not addressed worries of investors. The tax authorities recently issued a reminder letter to telecoms giant Vodafone stating that its assets would be seized if it did not pay its $2.1bn tax bill, a matter that was first reported by Bloomberg. This is a retrospective capital gains tax demand on the company for its $10.9bn acquisition of the mobile telephone assets of Hutchison Essar in 2007. Although it won its case in the supreme court, Vodafone is currently pursuing international arbitration to settle the matter in its favour with a finding that it is not liable for this tax.

In the recent budget for 2016-17, Mr Jaitley stated that he had earlier announced the creation of a high-level committee that would oversee any fresh case where tax authorities “assess or reassess income in respect of indirect transfers by applying the retrospective amendment”.

To allay fears of tax adventurism, he stated that “the committee would now be chaired by the revenue secretary and consist of the chairman of the Central Board of Direct Taxation and an expert from outside". This committee would oversee the implementation of the government’s assurances on retrospective taxation.

The budget speech also held out the possibility of a one-time settlement, “in which, subject to their agreeing to withdraw any pending case, lying in any court or tribunal or any proceeding for arbitration, mediation, etc under BIPA [bilateral investment promotion and protection agreements], they can settle the case by paying only the tax arrears in which case liability of the interest and penalty shall be waived”.

This strategy has been attempted before but without success. Vodafone’s reaction to this proposal was lukewarm: “We will of course study the detail of what the finance minister has proposed… while continuing to seek resolution of this matter through international arbitration,” the company said in a release.