“India’s journey to becoming an economic powerhouse faces challenges like retrospective taxation and tax activism. From Vodafone to online gaming taxes, such policies strain businesses, innovation, and investor trust. Discover how fair, predictable taxation can foster startups, employment, and stability, paving the way for equitable growth while safeguarding India’s ambitions in a competitive global landscape.”

Pinky Anand
India has come a long way. From being underdeveloped, we are now a developing country, aiming to become one of the largest economies in the world. We are no longer on the periphery: globally, India is being recognised for its achievements. However, alongside our growth, we must address critical issues like retrospective taxation and tax activism, which have far-reaching implications for businesses, revenue generation and economic progress.

“ Retrospective taxation is not just a financial burden—it
is a ‘sting’ that disrupts progress. It affects employment,
innovation and economic stability, undermining the very
foundations of growth. A fair and predictable tax regime is
essential for India to achieve its long term goals.“
Pinky Anand
Senior Advocate, Supreme Court of India

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GST and its Evolution
Looking back, the implementation of GST was met with significant resistance. Critics argued it would create hurdles and disrupt businesses. However, the revenue generated and the efficiency brought by GST have proven its worth. GST has become a cornerstone of India’s economic transformation.

Issue of Retrospective Taxation
Retrospective taxation has a long history, originating in the 18th century under British rule. While it is constitutionally permissible under Articles 245, 246, and 265, its application has often raised questions. Is it truly beneficial? Does it foster growth, or does it hinder progress? Recent judgments, like the Mineral Area Development Authority (MADA) royalty case, highlight these dilemmas.

The MADA case involved retrospective taxes dating back to 2005. Businesses, particularly mining companies, had planned their operations, infrastructure and taxation based on existing laws. Imposing significant retrospective liabilities disrupts these plans, creating uncertainty and financial strain. While states understandably need revenue for development, retrospective taxation often creates more problems than it solves.

Online Gaming: Current Flashpoint
A prime example of tax activism is the recent 28% GST imposed on the online gaming industry. This industry, projected to generate $5 trillion in revenue by 2025, is now grappling with disproportionate taxation. Previously taxed at 18%, the increase has erased distinctions between games of skill and games of chance, further complicating the landscape.

Such high taxation raises fundamental questions about the right to business and the fairness of state policies. With tax-free zones in countries like Dubai, businesses now have viable options to relocate. In a virtual world, operations can easily shift, impacting domestic revenue, employment and innovation.

Learning from the Past
Vodafone and Cairn The Vodafone and Cairn retrospective taxation cases serve as cautionary tales. Both disputes, involving billions in litigation costs, ended in international arbitration rulings against India. In 2021, the government repealed the retrospective tax provisions, refunding amounts collected. This reversal highlighted the importance of investor confidence and the need for certainty and predictability in taxation policies.

Retrospective taxation, especially in the corporate restructuring context, damages investor trust—not just for foreign investors but also for domestic businesses. To foster growth, businesses require fairness and stability in tax policies.

Broader Implications of Taxation
Disproportionate taxes, particularly when applied retrospectively, undermine public interest. This impacts employment, revenue generation and the development of tier-2 and tier-3 cities. Startups, which are vital for innovation, are particularly vulnerable. India has made remarkable progress in fostering startups, but such tax policies threaten to stifle this momentum.

Supreme Court judgments, from Chhotabhai to Vatika, emphasise fairness in taxation. Retrospective taxation must be aligned with legitimate public interest, ensuring it does not impose undue burdens on businesses.

Way Forward
As planners, policymakers, and citizens, we must advocate for prospective, rather than retrospective, taxation. Effective planning can prevent the need for such measures, aligning policies with business growth and public welfare. If retrospective taxation is unavoidable, it must be proportionate and fair, avoiding adverse impacts on businesses and consumers.

The online gaming industry’s situation illustrates the urgency of these reforms. Global practices, such as taxing gross gaming revenue (GGR) instead of the entire betting amount, offer valuable lessons. Collaborative efforts among the government, judiciary and civil society are essential to create a tax environment that promotes growth and innovation.

Conclusion
Retrospective taxation is not just a financial burden—it is a “sting” that disrupts progress. It affects employment, innovation and economic stability, undermining the very foundations of growth. By fostering fairness, predictability and collaboration, we can create a tax regime that supports India’s ambitions while ensuring justice and equity for all.

The sting of retrospective taxation need not define our future. Instead, let it serve as a lesson, guiding us toward a more equitable and prosperous path.