Arun Sarin, the CEO for mobile phone giant Vodafone met with key Indian government ministers in New Delhi this week, but played down controversy over the recent tax dispute surrounding the company's expansion.
A recent Times Of India report announced that during his meeting with Finance Minister Chidambaram, Sarin deliberately avoided approaching the subject of company's alarming tax liability, which has resulted from the recent US$11.2 billion buyout of Hutch-Essar (Vodafone's new Indian unit).
Just last month it was reported that Vodafone Essar had taken its fight with the Indian tax authorities over a US$2 billion capital gains tax bill to court. At the time, Sarin commented: “We are working with the Income Tax Department to sort this issue. Neither the Essar Group, nor Vodafone, nor Vodafone Essar is liable to pay taxes."
Reports in the national media have suggested that Vodafone is planning to spend up to US$2 billion expanding and strengthening its Indian network.
Speaking out on how he intends to develop his plans for the network, Mr. Sarin was quoted in The Hindu as explaining that: "In the coming weeks, the company will start playing the game it knows best: Bundling cheap handsets with mobile connections. The company seeks to extend its coverage to 90% of the market from 50% at present."
However, the fact that the company currently holds six licenses without any spectrum for the pending twelve months is likely to shake confidence in its stability, especially considering its - disputed - tax liabilities in the country.
The bill in question raises issues over the legitimacy of the company's take over, and claims that the purchase may have been arranged via an offshore subsidiary in Mauritius, with Vodafone-Essar acting as an 'agent' in the deal. If this is found to be the case, it could give the Indian tax department cause to show that a transfer took place, and that capital gains tax at 22% should have been deducted at source by Vodafone.
Mr. Sarin did not divulge any further details on the matter, simply stating that the company would wait for the courts to come to a decision.
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