Conciliation talks with Vodafone have failed. The Income-Tax department of the Government of India is now free to proceed to try and recover the amount it considers as due from Vodafone (INR200 billion = USD3.2billion). The Supreme Court of India had ruled in favour of Vodafone two years ago. The current President of India, then as FM, retrospectively amended the tax law to nullify the Supreme Court’s judgement. He was wrongly advised. This won’t help. It is no one’s case that foreign companies do not try to take advantage of the weak institutional structure in developing economies and the arm-twisting abilities of their parent countries vs. their host countries. But, retrospective amendments to laws are not done.
The country needs investment. With investment will come growth and with economic growth, will come tax revenues. May be, more than INR200 billion can be collected in taxes through better economic growth. Some holistic thinking is needed. Perhaps, this government is afraid of withdrawing the case lest it be accused of corruption. This is what corruption does and how it vitiates the decision-making process and decisions of the Government.