Vodafone warns India Tax Bill to hit $5 Billion
Vodafone has warned it faces a doubling of the $2.5-billion tax bill it is contesting in the Indian Supreme Court in July. Andy Halford, Vodafone's Chief Financial Officer, said on Wednesday night that the Indian authorities had threatened to impose penalties for non-payment that could raise its outstanding tax liability to $5 billion. The Indian authorities are pursuing Vodafone for tax that they maintain is due on its 2007 acquisition of Hutchison Essar, a fast-growing Indian mobile operator, for $10.9 billion.
A controversy over untaxed capital flows out of India has gripped the Indian Parliament in recent months as the country's leaders battle a series of high-profile corruption scandals, including allegations of a $39-billion telecom licensing scam. "It has put us in an invidious position," said Halford. "(The bill) is either $2.5 billion or it could be double that if we take extreme (scenarios). We have done a lot of M&As and this has never happened. We are not making any moves until this is resolved."
Vodafone has set aside $2.5 billion in an escrow account in the event that the Supreme Court rules against its case before the end of the year. But the UK company has made no special provision for the liability in the belief that it will win the case.
Halford said that Vodafone was urgently seeking regulatory and fiscal clarity that, it considers, has been muddied by retrospective changes to licences and application of an unexpected tax liability.
"We need to get clarity on regulatory aspects that have been unclear for a while," he appealed. India has a highly competitive telecom market, notorious for some of the cheapest mobile telephony in the world and, of late, suspected corruption over its mishandling of a 2G spectrum auction three years ago.
Vodafone still insists India is not hostile to foreign capital in spite of the regulatory difficulties it faces alongside other UK companies like resources groups Cairn Energy and Vedanta. Yet, its entry into the Indian market has been costly.
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