Had Benjamin Franklin lived in modern day India he might have used a different word from “certain” to link death and taxes. In a country where the wheels of government turn so rustily, tax demands can still arise with the sudden violence of a mid-afternoon monsoon. In March the oil and gas explorer Cairn India was hit by a bill for Rs205bn ($3.3bn) in tax and interest. This month looks to be the turn of foreign fund managers. Aberdeen Asset Management is the first to admit being stung; the likelihood is that there are plenty more yet to go public.
The net snaring hundreds of fund managers was never meant for foreign firms. The Minimum Alternative Tax (MAT) was put in place in 1997 to stop domestic businesses avoiding their dues. But alongside a retrospective tax law passed in 2012 the MAT has allowed eager tax inspectors to chase after foreign companies for bills they never thought should be paid.
This mess is not the fault of the current government, led by the zealously pro-business Narendra Modi of the Bharatiya Janata party. It was the previous Congress-led administration that passed the 2012 law, as part of a long drawn-out feud with Vodafone. But rather than repeal it, Arun Jaitley, Mr Modi’s finance minister, used his first budget merely to assure investors that his government did not plan to use such measures again. Old cases were left to be fought over in the courts. In the words of one tax adviser: “The whole mile has not been walked.”