Despite doing several things right, from changing the environment minister to showing more flexibility on FDI in retail, the government continues to get it wrong on critical issues. The income tax survey of Cairn India’s premises being one such. After all, when the government realised the mess the Vodafone retrospective tax amendment had caused, it rushed to assure investors that matters would be fixed once a Vodafone settlement was reached, that the amendment would not be used to reopen other cases. Yet that is precisely what the taxman is seeking to do now—to re-look a 2006 transaction on the basis of the Vodafone amendment. And, till the survey is complete, UK-based Cairn Energy has been advised not to participate in Cairn India’s share buyback so the taxman can have some assets to attach in case a tax payment is sought on the shares Cairn Energy transferred to Cairn India—as in the case of the Hutch-Vodafone sale, the shares were held in a company registered in a tax haven which was seen as acceptable since the Indian law did not explicitly tax such overseas transactions where the underlying asset was located in India. Making things worse for Anil Agarwal who also owns Cairn, as FE reported last week, the taxman plans to challenge the Sesa-Sterlite merger—approved by the court—since it will have to now refund R1,500 crore to the combined entity.
The case of the spectrum usage charge (SUC) is even worse. When different charges are levied for different types of telecom services, whether it is the SUC or the access deficit charge (ADC) in the past, there have been well-publicised instances of telcos misclassifying their revenues to take advantage of lower charges—in one instance, a telco said its international calls were local ones which attracted lower ADCs. Indeed, when 3G services were introduced in 2010 and it was suggested that a lower SUC be levied on 3G services, the DoT rejected this saying it wasn’t really feasible to figure out what revenue was 2G and what was 3G—so the two were combined for purposes of the SUC. This is precisely why Trai recommended a flat and uniform SUC a few months ago. Yet the Telecom Commission was against Trai’s proposal. The final decision on the matter has been left to the EGoM later today. The problem, if the EGoM goes in for anything other than a uniform SUC—and charges a lower