Guest Post by ADITYA VELIVELLI

POST-BUDGET UPDATE ADDED AT THE END OF THE POST (JULY 12, 2014)

Consider that an individual bought a house in 1992, made a few modifications, added a garden etc. and rented it out for the next 15 years. This would have brought the individual a steady stream of income over that 15 year period.  In 2007, the individual decides to sell the house and it fetches a much larger sum than it was bought for (considering real estate prices went up quite a bit during 1992-2007). The income tax department sends a bill for 20% of the sale price. This is the long term capital gains tax and applies to both residents of India as well as non-residents.

Now consider this.

In 1992 the Hutchison Group of Hong Kong invested in the Indian mobile telecom industry through a joint venture later named Hutchison Essar Ltd or HEL. By 2006, Hutchison expanded its presence into 23 mobile telecom circles.

In 2007, the Hutchison Group’s 67% controlling interest in HEL was indirectly sold to Vodafone for an amount of USD 10.8 billion. This transaction occurred through Vodafone’s purchase of shares in a Cayman Islands (offshore) entity. It was a calculated attempt by Hutchison and Vodafone to avoid paying tax on capital gains. Continue reading Lobbying for a tax-free banana republic: Aditya Velivelli →