| FinMin may drop retro tax law to end Voda row |
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New Delhi, 2 June Telecom major Vodafone's long- pending tax dispute with the government might be heading for a resolution, with the finance ministry considering changing the Income- Tax Act's retrospective amendment and taxing indirect transfer of assets prospectively from 2012, the year the law was clarified. Alternatively, the ministry could consider issuing a circular to waive off interest and penalty in all such cases. But officials say that alone might not help the government shed the ' tax terrorism' tag, so the best possible solution could be doing away with retrospective taxation. "In all probability, retrospective tax will go. The Income- Tax Act may be amended to clarify that Section 9 would be applied prospectively," said a government official asking not to be named. Senior Vodafone representatives had last week called on top finance ministry bureaucrats and sent feelers the British telecom firm wanted to settle the dispute amicably. Though Vodafone has slapped an international arbitration notice on India in this case, the fact that the Constitutional validity of retrospective amendment has been challenged by some affected companies in various courts could be more worrying for the government. IHC Mauritius Corporation and SABMiller had filed writ petitions in the Bombay High Court, while McLeod Russel India Ltd had challenged retro taxation in the Calcutta High Court. According to experts, if the courts rule in these companies' favour, there could be more trouble for the government. "To address the dispute, the tax department needs to remove from the Act only one line that says the amendment will apply retrospectively from April 1962. That looks like the only ideal solution," says Sunil Jain, partner at J Sagar Associates, a law firm. Amendment to Section 9 of the Act, introduced in Budget 2012- 13 by then finance minister Pranab Mukherjee, mainly affected Vodafone. The company had won the case in the Supreme Court but Asked about revenue loss to the few similar cases and the However, the issue before the The tax department had Vodafone for its 2007 acquisition of Hutchison Whampoa's assets in Hutchison- Essar ( now Vodafone India) in foreign deals. A 100 per cent penalty and interest on the demand takes the total to over ₹ 20,000 crore. Turn to Page 21 > Waiver of interest and penalty in all such cases also a possibility CLOSURE IN SIGHT? Key cases involving indirect transfer of assets |$ 150- million Idea CellularAT& T deal |$ 500- million deal between GE and Genpact |$ 981- million Mitsui- Vedanta deal in Sesa Goa |A 2006 deal between SABMillerand Fosters |
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| Finance ministry may drop retrospective tax law to end Vodafone row |
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JSagar's Jain, however, said not all companies would be willing to pay even the principal amount, as their case might slightly differ from Vodafone's. Meanwhile, the finance ministry is drafting a reply to Vodafone's arbitration notice. It will insist that tax issues not be covered in the IndiaNetherlands Bilateral Investment Promotion Agreement, under which the notice was served. Former finance minister P Chidambaram had last year proposed conciliation with Vodafone. However, that proposal was withdrawn later, as Vodafone wanted to club another transfer- pricing case in the conciliation. Meanwhile, the Cabinet had asked the finance ministry to wait for the Income Tax Appellate Tribunal's order on the transferpricing issue. But Vodafone reportedly said it did not see any merit in waiting for the ITAT order. Also, Vodafone wanted conciliation under the United Nations Commission on International Trade Law, while the government did not want it outside the Indian Arbitration and Conciliation Act. The finance ministry is drafting a reply to Vodafone's arbitration notice. It will insist that tax issues not be covered in the India- Netherlands investment agreement |
| Labour law reform unlikely to kick- start manufacturing sector |
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New Delhi, 2 June This summer, the Bharatiya Janata Party (BJP)' s election manifesto promised to " review our labour laws which are outdated, complicated and even contradictory". Now, with a BJP government at the Centre, industry representatives are hoping Prime Minister Narendra Modi will deliver on his promise. However, the changing profile of the Indian workforce and the growth of contract hiring suggest changing the laws that govern a small and steadily dwindling percentage of workers is unlikely to transform Indian manufacturing. "We have overregulated to protect a small percentage of the workforce at the cost of the majority," said Rajpal Singh, Director Labour and Employment at Federation of Indian Chambers of Commerce and Industry (Ficci). " There are too many laws, which means different inspectors from different departments. This needs to be simplified." The changes described by Rajpal would make it easier for firms to retrench or dismiss permanent workers and make it harder for workers to go on strike ( see box). Firms already have the power to terminate contract workers as they do not hire them directly. Workers and Union members contend the problem is not the law per se but compliance; employers, workers claim, routinely flout labour laws – often in cahoots with the labour department. "Labour law implementation is very poor, employers are doing so many illegal things including blocking the creation of workers unions," said D L Sachdeva, National Secretary of the All India Trade Union Congress ( AITUC), who said a majority of labour law violations are never reported, " The way we are seeing their attitude, we cannot leave anything to the employers – there have to be statutory laws." India has 47 central laws and over 200 state laws that regulate the relationship between workers and their employers ( see box), yet the link between restrictive laws and diminished industrial productivity is a subject of heated academic debate. "India's protective job security rules seem to have negative consequences. However, the more difficult question is how much of a barrier they really are to the country's economic development," writes labour economist Gordon Betcherman, in a2014 review of literature on the link between jobs and employment. Studies reviewed by Betcherman suggest laws that restrict job dismissals have little impact on aggregate employment across the economy but tend to benefit skilled young men at the cost of marginalising women and the unskilled — who find themselves pushed into the informal economy. "Labour reform, perhaps under the form of similar benefits to those in force today but more latitude for firms to adjust their employment, would certainly help the development of labour- intensive sectors, such as garments," said Martin Rama, lead economist for south Asia at the World Bank, " But there are other constraints getting on the way of firm dynamism in India: Insufficient infrastructure, power shortages, poor logistics. Labour reform alone is unlikely to make India a manufacturing powerhouse." In World Bank surveys, only 15 per cent of firms identified labour regulations as amajor constraint to growth. The laws themselves are applicable to small minority of working Indians — well over 90 per cent of who work in the informal economy. In 2013, for instance, the number of contract jobs in India grew by 39 per cent, according to a survey by the Associated Chambers of Commerce and Industry ( ASSOCHAM). While the services sector has long relied on contract work, the ASSOCHAM survey reveals 56 per cent of workers in the automobile sector and 52 per cent of all manufacturing now work on contract. "A 100 per cent of job creation over the past 20 years has been in the informal sector," said Manish Sabharwal, of TeamLease, one of India's largest suppliers of contract labour, who says restrictive labour laws are the reason. While industry associations like Ficci want a reconciliation and consolidation of the country's many laws, Sabharwal suggests labour be made entirely a state subject, allowing industry to pick where it would like to set up shop. Sabharwal offers the Apprenticeship Act of 1961 as an example where excessive regulation and prison sentences for violations discourages employers from hiring apprentices even as the low stipend and prolonged duration of up to four years keeps young workers from applying. Reforming the act by increasing stipends and simplifying procedures could transform hiring practices and provide millions of jobs, he said. Sachdeva from AITUC, however, expressed concerns on scaling up the apprenticeship act. Data compiled by TeamLease suggests, for the first time, there was little difference between entry- level salaries for permanent and contract workers — both were paid close to the prevailing minimum wage. Hiring more apprentices, Sachdeva feared, could provide industry with another avenue to underpay its workers as apprentices are not paid at the same rate as workers. "The significant and rising share of contract workers means there is already flexibility in hiring and firing," said economist C P Chandrasekhar. "If, indeed, there is a need for reform, it must be through a tripartite process between state, labour representatives and employers, not by the state succumbing to the propaganda of the private sector." STATE OF THE INDIAN WORKFORCE Rise of contract labour means changing laws unlikely to change the way India Inc does business |
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