India is actively exploring ways to resolve recent tax disputes with major companies like Infosys and certain foreign airlines to restore amicable relations with foreign investors. The authorities will settle a demand of $4 billion (32,000 crore INR) in back taxes from Infosys and other tax notices sent to ten foreign airlines. Discussions on the matter are expected to take place in early September in an upcoming GST council meeting.
—
India is taking steps to resolve significant tax disputes with some major companies like Infosys Ltd and certain foreign airlines, as confirmed by sources associated with the case. In an attempt to avoid hurting the sentiments of investors in the country, the Indian government appears to be ready to make accommodations.
In a recent move, India demanded a sum of 32,000 crore from Infosys in back taxes from 2017. India might now explore options to settle with the IT services provider, among other companies. At the time, the authorities had cited a non-payment of taxes by the company on expenses incurred by its offices located in countries like the US and Europe. Tax notices were also sent to British Airways along with 9 other airlines.
The tax demands and the following backlash come at a time when India is attempting to lure investments away from China. Market analysts believe that these tax demands might yet again prove India to be a difficult place to do business, particularly since the demands were sent out with little to no warning to the companies.
The government is keen on resolving disputes, cutting down litigation, and ensuring the long-term ease of doing business. To discuss these notices, among other important things, the GST council, comprising of a panel of state finance ministers and the federal finance minister, Nirmala Sitharaman, will meet on Sept. 9 and make a formal decision.
On Wednesday, Finance Minister Nirmala Sitharaman also urged tax officials to utilize their powers judiciously. The tax officials are directed to seek directions from the administration before pursuing any such case and the use of enforcement measures should only be a last resort.
However, this is not the first time that India has faced tax disputes with foreign firms. In the past as well, India faced backlash from companies like Vodafone Group PLC. According to critics and market analysts, such episodes leave a negative impact on the country’s business environment and discourage foreign investment to a great extent – an impact India is not prepared to take. At a time when India is aiming to attract foreign capital and expertise to drive the economy, such incidents should be avoided.
In response to the Indian government’s demand, Infosys has argued that the tax demanded by India is not warranted and has sought relief. Objections were also received from the International Air Transport Association which called for an urgent resolution to the issue. The Finance Ministry spokesperson has not commented on the matter.