Shome panel suggestions signal middle path in Voda row

Just what the doctor ordered. This is how one could explain the recommendations from the Parthasarathi Shome panel that looked into the taxation issues relating to General Anti-Avoidance Rules (GAAR).

According to a report in The Economic Times, the panel has suggested interest and penalty should not be charged on taxes collected retrospectively.

The suggestion may resolve the government’s contentious tax dispute with Vodafone and many such cases that face a tax claim.

The dispute pertains to a tax claim of Rs 20,000 crore slapped on Vodafone for not withholding tax on its $11 billion purchase of Hutchison stake in Hutch Essar in 2007.

A waiver of interest and penalty will significantly bring down the company’s tax liability to about Rs 8000 crore, according to media reports.

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The government made the tax claim on the grounds that the transaction involved Indian assets, though the deal took place between two companies that were not based out of India.

Earlier, a report in _ET_had said the Central Board of Direct Taxes was also considering such a proposal. Now if the Shome panel has also suggested the same, in all probability the dispute is seen nearing an amicable solution, if the company accepts the proposal.

However, Vodafone had denied that it had agreed to any proposal to waive off interest and penalty.

“Vodafone has never expressed a willingness to settle the tax dispute at Rs 8,000 crore or any other amount,” a person close to Vodafone was quoted as saying in a report in ET on 28 September.

The report was a denial of an earlier ET report that the company is ready for a settlement if interest and penalty are waived off.

However, the company had signalled a climb-down from its stance.

“If the government takes one step forward, Vodafone will also take a step forward,“Vodafone India’s non-executive chairman Analjit Singh was quoted as saying in media reports earlier.

The British company has also expressed its willingness to set earmark cash to pay for the tax liability in India.

The proposal from Shome panel looks like a middle path that may serve as a win-win for both the parties.