Vodafone Group faces a prolonged tax dispute with Indian government, negotiations may get scrapped

Indias government is considering dismissing the conciliation talks with U.K.-based Vodafone Group Plc over a tax dispute estimated to 2.2 billion dollars. The tax dispute is considered to have corrupted the countrys attractiveness as a destination for foreign investment.

According to the words of D.S. Malik, who is a spokesman of the Finance Ministry, a proposal to end the negotiations will be considered by the Cabinet. Mr. Malik did not provide any details on the reasons or the period of time when the decision will be made. As reported by CBNC-TV18 channel, the talks may fail due to the fact that the second-largest mobile-phone carrier in the world had tried to include a separate tax clash in the negotiations.

As Bloomberg reported, a great number of companies – from Nokia OYJ to Royal Dutch Shell Plc are confronting the tax demands in India. The companies also share their concerns that the countrys tax laws have become more strict and demanding than ever, even considering the fact that Manmohan Singh – the Prime Minister of India – is said to see foreign investment as a way to help the country bring a new life to its economic growth. The dispute between the Indian government and Vodafone Group Plc dates back to 2007, when the mobile-phone carrier purchased Hutchison Whampoa Ltd.s Indian unit.

Mukesh Butani, who is a partner at BMR Legal, which is based in New Delhi, said for Bloomberg: “India could have done better and taken into consideration the signals this decision sends to foreign investors. This isn’t a pragmatic or holistic decision. I don’t think either side has budged since day one of these negotiations.”

The spokesman of Vodafone Group Plc in India – Suresh Rangarajan refused to make any comments on the position of the company on the tax dispute problem when reached by phone today.

Vodafone Group Plcs shares traded at GBX221.45 in London at 9:03 GMT, down 0.02% on the day, marking a +27.81% one-year change. According to Financial Times, the 21 analysts offering 12-month price targets for Vodafone Group Plc have a median target of GBX245.00, with a high estimate of GBX275.00 and a low estimate of GBX130.00. The median estimate represents a 10.61% increase from the last price of GBX221.50.