Sending out a clear message to the global investor community that his government is not there to harass them, Finance Minister P Chidambaram has bagged a Cabinet approval to go ahead with a conciliation process to settle the multi-billion dollar tax dispute with telecom major Vodafone, which if succeeds will help avoid a lengthy international arbitration process and sooth investor worries on retro tax. The Cabinet approval is only to start a non-binding conciliation process or to start negotiations with Vodafone for a possible settlement of the Rs 14,000-crore tax dispute. Out of the total demand more than half—Rs 7,900 crore—is interest and penalty on the tax dues, and this may get waived if the talks succeed.

 

"We have just accepted a proposal for a non-binding conciliation. If the outcome is acceptable to the government then it will go to the Cabinet and thereafter to Parliament for approval," Chidambaram told the media after the Cabinet meeting last evening. The law provides for such talks, he added.

 

The outcome of the talks in this case would impact at least four other cases, involving SAB Miller and AT&T-Idea, among others. Vodafone and the government have been in a bitter dispute for nearly six years over what the tax department says is the telecom giant's failure to deduct capital gains tax worth $2 billion when it bought out the Hong Kong-based Hutchison’s operations here in February 2007. Vodafone and Hutch have, however, been maintaining that there is no tax liability as the deal happened outside country. Even the Supreme Court has upheld that their argument but the then finance minister Pranab Mukherjee got Parliament to retrospectively amend the law to levy tax in the 2011 budget, forcing Vodafone to

threaten arbitration proceedings and foreign governments to protest against the retrospective tax measure and foreign investors began to retreat scared by uncertainties in tax policy.