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Govt must accept Vodafone verdict for India’s GDP growth

Govt must accept Vodafone verdict for India’s GDP growth

As if the coronavirus-induced economic pain were not enough, the deep pink state—comprising Nehruvians entrenched in the system—are hurting the cause of recovery. They are leading the country to the most dangerous part of the quagmire called Vodafone tax case. Their view is that India should extract Rs 22,000 crore from the company despite an adverse ruling from the international court and an earlier one from our own Supreme Court. If the Narendra Modi government accepts this view, the ramifications would be calamitous and far-reaching for India’s attractiveness as an investment destination and its gross domestic product (GDP).

The deep pink state can sound nationalistic but its decisions are invariably against the best interests of the nation. The <a href="https://timesofindia.indiatimes.com/business/india-business/sovereign-right-to-tax-govt-may-not-implement-international-tribunals-order-on-vodafone/articleshow/78651557.cms" target="_blank" rel="noopener noreferrer">Times Of India</a> quoted unnamed Central government officials today who claimed that the order from the international court “impinges on its sovereign right to tax.”

An official source, on condition of anonymity, told TOI: “While we have said that India is against retrospective taxation, a bilateral investment agreement is for protection and facilitation of investment. It has nothing to do with tax policy… A tax claim cannot be used to invoke BIPA [the India-Netherlands Bilateral Investment Protection Agreement].”

Another official, again unnamed, sounded positively jingoistic, “These tribunals acting like super states and decide on what’s in the exclusive domain of Parliament or courts.”

This is a mix of lies and chicanery, for a nation doesn’t compromise its sovereignty by respecting international laws and rulings by international courts. “A United Nations tribunal ruled in favor of Bangladesh and against India regarding a sea boundary dispute between the two countries. Both countries welcomed the decision of the UN tribunal which puts an end to a decades-long dispute between the two South Asian neighbors. The decision was taken by the Hague-based Permanent Court of Arbitration (PCA) and concerned a disputed area in the Bay of Bengal,” The Diplomat reported on July 10, 2014.

The tribunal awarded Bangladesh nearly 80 per cent “of an area sprawling over 25,000 sq km (9,700 sq miles),” a Reuters report said.

“The settlement of the maritime boundary will further enhance mutual understanding and goodwill between India and Bangladesh by bringing to closure a long-pending issue,” our External Affairs Ministry said in a statement at that time.

“This paves the way for the economic development of this part of the Bay of Bengal, which will be beneficial to both countries,” the statement further said added.

If ceding territory doesn’t compromise sovereignty, how does foregoing a fraudulent claim do? It is a well-known fact that territory is more important for a nation than money: money is ephemeral, territory is not.

We narrated the Vodafone case in another article earlier “The sordid saga began in May 2007 with Vodafone buying a 67 per cent stake in Hutchison Whampoa for a consideration of $11 billion. Vodafone bought Hutchison’s mobile telephony business and other assets in India. Four months later, the Indian government demanded Rs 7,990 crore in capital gains and withholding tax from Vodafone, arguing that it should have charged the same from Hutchison as tax deducted at source before making a payment.

<strong>Also read | <a href="https://indianarrative.com/economy/govt-should-accept-hague-verdict-bury-voda-case-15372.html" target="_blank" rel="noopener noreferrer">Govt should accept Hague verdict, bury Voda case</a></strong>

“Vodafone legally challenged the demand notice, and the case went up to the Supreme Court. In 2012, the apex court decided in favor of Vodafone. The matter should have ended there, but taxmen managed to convince the then finance minister, Pranab Mukherjee, to disregard the highest court of the land and undo its ruling by bringing in an ordinance—which he did.

“Mukherjee remained stubborn regarding the retrospective tax demand. He thundered in Parliament: ‘I would like to be guided either by a double tax avoidance agreement or domestic tax law. There cannot be a situation where somebody will make money on an asset located in India and will not pay tax either in India or to the country of its origin.’ Unfortunately, Parliament let the government override the Supreme Court, and the ordinance became law.”

It is unfortunate that the Modi regime accepted the spurious and fallacious logic proffered by Pranab Mukherjee. The late statesman had many virtues but international taxation was not one of them.

It would be even more unfortunate if the pseudo-nationalistic logic is allowed to prevail after the international court verdict. Even if we accept that this verdict undermines our sovereignty, how could India convince the world about its own Supreme Court’s stance? Did that too want to undermine the nation’s sovereignty? And are the true nationalists found only in the Finance Ministry?

Non-acceptance of the verdict by the international court will have calamitous consequences for India for a variety of reasons. First, it would be perhaps the first time that India would be indulging in such insolence. We respected an adverse verdict in our territorial conflict with Bangladesh six years ago; there is no reason why we shouldn’t do it now.

Second, after months of efforts—including export of HCQ and personal protection equipment—India has been able to improve its image which was dented because of the hugely-reported agitation against the new citizenship law and, later, the February riots this year. The government should do nothing to hurt the country’s reputation.

Thirdly, refusal to accept the verdict will make the selling of India as an investment destination will become extremely difficult. How would we explain the illegality and immorality of the refusal? Investors will tell us that the government in India is arbitrary; it doesn’t listen to its own courts. How would we answer them? Investment is important for brisker GDP growth.

And, finally, the government doesn’t lose anything by foregoing the demand, for it will not have to pay anything to Vodafone in that event. And if it insists on the demand, the company may just shut shop, as its promoters have said in the past. This will be bad not just for the company, its employers, stakeholders, and creditors but also for the entire telecom sector where a monopoly situation is emerging.

Therefore, it is imperative that the Narendra Modi government accepted the international court’s ruling and reined in the deep pink state..