Spare Vodafone – Save Thousands of Jobs: Ex-Chief Justice Kapadia
Ex-Chief Justice of India S. H. Kapadia is a man of immense wisdom and learning and is not afraid of speaking his mind. He comes clear on the Vodafone amnesty controversy, GAAR and the problems plaguing the Indian tax administration today and offers valuable suggestions on how to resolve them
Vodafone is destined to be a saga of never-ending controversy. The raging controversy at the moment is whether the newly appointed Law Minister Kapil Sibal was justified in overruling the decision of his predecessor Ashvini Kumar on the grant of amnesty to Vodafone over its’ tax liability of Rs. 19,000 crore.
S. H. Kapadia put the entire controversy in its correct perspective by sending the gentle reminder that the Government’s rough-neck policies of tax collection were driving away foreign investors to other Countries
In the deafening political hullabaloo, one needs to pay close attention to the words of wisdom from Ex-Chief Justice of India S. H. Kapadia.
Speaking at the IFA Conference in Mauritius, S. H. Kapadia put the entire controversy in its correct perspective by sending the gentle reminder that the Government’s rough-neck policies of tax collection were driving away foreign investors to other Countries. “India needs investment for employment generation and advancement of its economy and everyone needs to keep that in mind” he said.
Kapadia drew from his own personal experience to prove the importance of a sensible tax strategy to attract foreign investors. He pointed out that after the judgement of the Supreme Court was delivered holding that Vodafone was not liable for paying the Rs. 19,000 crore of tax demanded by the Government, he was told by “thousands of youth” that their jobs were saved due to the judgement.
One can detect a tinge of regret in Kapadia’s voice that the Government did not respect the Vodafone judgement and instead enacted retrospective amendments to nullify it. And now, when the pendulum is turning to the other end and the Government wants to give Vodafone an amnesty, there are still voices of dissent and protest.
The other issue about which the Ex Chief Justice was critical is the bad drafting of laws and the way they are interpreted. Kapadia has on earlier occasions pointed out that the way in which the tax laws are drafted is not at all satisfactory. He warmed up on the same theme and pointed out that the main problem was that the laws were so complex that a tax officer could interpret a rule in the way that suits him for meeting the revenue collection target.
Indian tax laws were so complex that foreign investors had no clue on what their tax exposure is and a huge demand such as the one raised on Vodafone creates an unpleasant and shocking experience. Such arbitrary action shakes their confidence and they are hesitant to make further investments into India
The Learned Jurist suggested that there should be clear distinction between rules and standards when it comes to tax matters and gave a classic example to explain his point. Suppose there is a “standard” providing that motorists should “drive carefully“. This can mean anything and can be interpreted to suit one’s own convenience. On the other hand, if there is a “rule” stating that motorists should not exceed a speed limit of 60 KmPh, there is no scope for confusion and everyone knows what the Rule means, Kapadia explained.
Kapadia pointed out that Indian tax laws were so complex that foreign investors had no clue on what their tax exposure is and a huge demand such as the one raised on Vodafone creates an unpleasant and shocking experience. Such arbitrary action shakes their confidence and they are hesitant to make further investments into India.
Kapadia urged the Government to ensure that the language of the statute is made very clear. He suggested that everyone including lawyers, accountants and tax consultants needed to work on this and support the Government.
Incidentally, Kapadia is not the only Jurist to bemoan the sorry state of tax laws in the Country. Even Justice Swatantra Kumar, who was a party to the Vodafone judgement, expressed anguish that tax avoidance was the result of complex tax laws & a hostile tax department.
Kapadia also expressed grave concern that GAAR would become a source of great harassment for taxpayers. He advised the Government to ensure that GAAR should only be an anti-abuse rule on tax matters and not on anti-avoidance. He also suggested that a principle of reasonableness needs to be applied and that even if a taxpayer failed to comply with the rules, the authorities must follow a fair procedural framework, so that the taxpayer does not feel victimized.