retrospective tax Archives

Saudi Aramco in advanced talks with Reliance for $25 billion deal: Report

According to a report from Bloomberg, Saudi Aramco is in advanced talks for an all-stock deal to acquire a stake in Reliance Industries Ltd’s (RIL) oil refining and chemical business. Aramco is discussing the purchase of a nearly 20% stake in the Reliance unit for about $20-25 billion (Rs 1.48 – 1.85 lakh crore) worth of Aramco shares. The report further states that RIL could reach an agreement with Suadi Aramco as soon as the coming weeks.

RIL had announced the sale of a 20% stake in its oil-to-chemicals (O2C) business to Aramco for $15 billion in 2019. However, the deal stalled after oil prices and demand crashed last year due to the Covid-19 pandemic.

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India’s WPI inflation eases to 11.16% in July

The inflation based on the Wholesale Price Index (WPI) eased to 11.6% in July 2021, compared to 12.07% in June. Inflation in manufactured products stood at 11.2% in July, compared with 10.88% in June. The inflation in food articles remained flat against a 3.09% annual rise in June. The fuel and power index rose 26.02% annually in July, compared to an increase of 32.83% in June. The data was released by the Ministry of Commerce and Industry.

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Tata Motors partners with Bank of Maharashtra for car loan scheme

Tata Motors has partnered with the Bank of Maharashtra to offer car loan facilities for its ‘New Forever’ range of passenger vehicles. Under the partnership, the bank will provide loans to Tata Motors’ customers at an interest rate starting from as low as 7.15% linked with Repo Linked Lending Rate (RLLR). The ‘Maha Super Car Loan scheme’ will offer a maximum of 90% financing on the total cost of the vehicle (on-road pricing) for salaried employees, self-employed people, and businessmen.

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HDFC Bank to raise funds by issuing AT-1 bonds in overseas market

HDFC Bank has announced plans to raise capital by Additional Tier-I (AT1) bonds in the overseas market to fund its business growth. The bank is expected to raise up to $1 billion (~Rs 7,420 crore) from the dollar-denominated bonds. An offering memorandum (OM) has been prepared and will be available to prospective investors in relation to the contemplated issue of debt instruments.

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Tyre industry body ATMA urges government to allow duty-free import of natural rubber

The Automotive Tyre Manufacturers Association (ATMA) has asked the government to allow the duty-free import of natural rubber. The shortage of the commodity in India has become a major obstacle for the tyre industry to support domestic manufacturing. According to ATMA, natural rubber consumption is likely to increase further, and the annual demand is expected to cross 13 lakh tonnes in FY22. The tyre industry accounts for over 70% of natural rubber consumed in India.

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Tata Steel lays out capital expenditure of Rs 3,000 crore for European operations

“Tata Steel has laid out a capital expenditure of Rs 3,000 crore for its European operations as its focus is to make the business stronger”, said CEO and Managing Director T.V. Narendran. The company’s operations in Europe are being separated into Tata Steel Netherlands and Tata Steel UK, which would help in cost efficiencies and management focus. Tata Steel’s CEO further stated that the European business will be cash positive in terms of EBITDA and Profit After Tax (PAT) in the current financial year (FY22).

Ruchi Soya gets SEBI approval to launch Rs 4,300 crore FPO

Ruchi Soya Industries Ltd has received approval from market regulator SEBI to sell fresh shares worth up to Rs 4,300 crore through a follow-on public offer (FPO). The FPO is being launched to meet SEBI’s minimum public shareholding norm of 25% in a listed entity. Ruchi Soya’s promoters will dilute a 9% stake in the company through the FPO. According to reports, the proceeds from the FPO will be used for reducing the company’s debt and meet working capital requirements. Ruchi Soya is owned by Baba Ramdev’s Patanjali Ayurveda.

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Rules on retro tax to be framed soon: Nirmala Sitharaman

Finance Minister Nirmala Sitharaman has stated that the rules that will lead to the scrapping of the retrospective tax demands made on companies such as Cairn Energy plc and Vodafone plc will be framed soon. Earlier this month, the Parliament had passed a bill to scrap all tax demands made using the 2012 retrospective tax legislations. The Finance Ministry officials are conducting discussions with Cairn and Vodafone on the closure of retro tax cases, refund, and settlement. You can learn more about retrospective taxation here.

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Olectra Greentech secures order worth Rs 70 crore for 50 e-buses

Olectra Greentech Ltd has received a Letter of Award (LoA) from Gujarat State Road Transport Corporation (GSRTC) for the supply of 50 nine-meter electric buses. The supply will be on a Gross Cost Contract (GCC) basis for a period of ten years. The order is valued at Rs 70 crore. The buses will be delivered over a period of 12 months. Hyderabad-based Olectra Greentech is a leading manufacturer of e-buses and insulators in India.

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Ramkrishna Forgings wins order worth €20 million

Ramkrishna Forgings Ltd has secured a multi-year order from a European Tier-1 customer in the auto segment worth €20 million (~Rs 174 crore). The order is to be implemented over a period of four years. Ramkrishna Forgings is a leading manufacturer and supplier of open and closed die forgings of carbon and alloy steel, micro-alloy steel, and stainless steel.

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What Is Retrospective Tax?

Retrospective taxation allows a country to pass a rule on taxing certain products, items, services, and deals, and charges companies from a time behind the date on which the law is passed. Many countries use the law to correct any irregularity in their taxation policies that allowed companies to take advantage of such loopholes in the past. In simple terms, the government can tax companies for transactions made in the past.

Let us take a simple example. Raj is a student who has recently moved to Banglore. For the first three months, he pays a rent of Rs 5,000 as agreed with the landlord. After three months, the landlord increases the rent to Rs 6,000. Raj agrees to pay, but the landlord says that the rent for the first three months should also be Rs 6,000. Therefore, Raj will have to pay Rs 1,000 extra per month for the first three months he has stayed. This is exactly the kind of power the government has with the retrospective taxation law.

The History

The law was introduced in 2012 when the government was fighting Vodafone in the courts. Vodafone acquired Hutch (Hutchison Essar Telecom services) in 2007. In 2011, the government raised a tax demand of Rs 7,990 crore as capital gains tax. The government believed that the company had made capital gains and it should have retained the tax amount during the transaction itself.

The company declined to pay since it believed that the transaction did not fall under India’s tax jurisdiction. This was because Vodafone UK, through its subsidiary in the Netherlands, had acquired Hutchison which was based in Hongkong. Moreover, the entire transaction took place in the Cayman Islands.

Subsequently, the company and the government took the case to the High Court, which ruled in favor of the government. Subsequently, Vodafone appealed to the Supreme Court and won the case. Late Pranab Mukherjee, who was the Finance Minister at that time, decided to have Retrospective Taxation in India. This allowed the government to tax companies based on previous transactions. So, if a new tax law came today, the government could apply it and tax companies based on past transactions.

Another such dispute was with UK-based Cairn Energy. The company took a similar case against the Indian Government to the Arbitral Tribunal in Hague (Netherlands) and won a ruling in its favor. The Permanent Court of Arbitration at the Hague ruled that the Indian government should pay damages worth $1.2 billion to Cairn Energy since it had wrongfully applied a retrospective tax demand.

What Next?

The Retrospective Tax aimed to increase government revenue by ensuring that companies do not doge tax. All this, but at what cost? The law was unfair for corporations since taxing previously dated transactions was against the spirit of justice. As in the case of Cairn Energy (UK), the Permanent Court of Arbitration ruled that “the Indian government’s retrospective demand was in breach of the guarantee of fair and equitable treatment”. Retrospective Taxation earned India severe disrepute in the international forum. A country in a dire need of foreign investments has to ensure that its taxation policies are welcoming for multinational companies.

The Indian government has signed a bilateral treaty with both the UK and the Netherlands. This ensures that both countries allow businesses to function seamlessly in each other’s jurisdiction without unfair treatment. India seems to have failed to uphold its obligations under both treaties.

On the retrospective taxation law, Prime Minister Narendra Modi said that ‘the decision taken by India to get rid of retrospective taxation shows our commitment, shows consistency in policies and gives a clear message to all the investors that India is not only opening the doors of new possibilities but the decisive Government of India, has the will to fulfill its promises’.

Here’s a question for you. Do you think that the Indian government’s taxation policy is hostile to international investment? You can let us know in the comment section of the marketfeed app.