Exit polls are pointing to another term for Narendra Modi in India, but don’t expect overseas investors to be as pumped up by his victory as they were five years ago. Before he offers any new promises, they would like the prime minister to fulfill his pledge to make the tax system less capricious.
In its 2014 election manifesto, Modi’s Bharatiya Janata Party attacked the then Congress Party-led government for unleashing “tax terrorism and uncertainty,” which it argued, “not only creates anxiety among the business class and negatively impacts the investment climate, but also dents the image of the country.”
The transaction in question was an eight-year-old reorganization. Cairn Energy transferred ownership of its Indian oil field in 2006 to Cairn India Ltd., to prepare for the local unit’s initial public offering. But in January 2014, the Indian tax department began questioning the internal transfer of shares, weaponizing a 2012 law that allowed for windfall gains to be probed retrospectively, going all the way back to 1962. Cairn has been contesting the government’s right to tax the transaction.
Modi’s party – looking to unseat the Manmohan Singh government on charges of corruption, policy paralysis and economic mismanagement – managed to latch on to the angst caused by retrospective taxation.
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