India's Union Budget for 2013-14, which was announced by the country's finance minister, Palaniappan Chidambaram, at the end of February, has been met with dismay by foreign investors. Concerns have been raised over the lack of clarity to the Double Tax Avoidance Agreement with Mauritius and, more significantly, the lack of clarity regarding the government's position on the rise in transfer pricing disputes and the retrospective tax amendments. Mr Chidambaram had previously indicated that he was going to seek to resolve these issues in the new budget.

The decision not to reform the tax system was called a “lost opportunity” by the Financial Times. Ameet Patel, a partner at the SKP Group, a Nexia International firm operating in India, said that the budget has not been able to “lift investor confidence in the India story”.

Advertisement

In his post-budget interviews, Mr Chidambaram tried to clarify the government's position on the Double Tax Avoidance Agreement with Mauritius. But when questioned over the stance he had taken on the other ongoing tax issues, he said that the priority was to protect the country's tax base.

Foreign investors remain concerned about the taxation of indirect transfers of assets located in India. Vodafone, one of the company's that has been charged with transfer pricing violations, was invited by Mr Chidambaram to propose its own resolution to the situation. “I have told Vodafone that I want the matter resolved and I told [the company] that if it wants to resolve, suggest a way forward," said Mr Chidambaram. "So, it has suggested conciliation. We will consider this in the cabinet and if the cabinet gives a green signal, we will go to conciliation.”

Once this issue is resolved, there will be more clarity on how the amendments will be worded when the Finance Bill 2013 is passed in Parliament. But SKP Group's Mr Patel was sceptical about such an approach. “The retrospective amendment brought about last year stands. This is not likely to go down well with investors,” he said.

Mr Chidambaram has remained unfazed by the reception to the budget and is commencing on a global tour of Canada, Japan and the US to promote India as an investment destination.