When Vodafone Plc entered the Indian market five years ago it termed it as the jewel in its crown. But with issues such as spectrum pricing and withholding tax tormenting the British company over the last two years, the jewel seems to have lost some of its sheen.

“I think it is still a jewel but we need to polish it.. its got a little dust on it,” said Mr Andy Halford, Group Chief Financial Officer, Vodafone Group Plc, in a conversation with Business Line .

Biggest worry

The biggest worry for the telecom major is the dispute with the Indian tax authorities over paying capital gains tax when Vodafone acquired Hutchison's stake in the joint venture with Essar. Tax authorities claim that Vodafone is liable to pay $2.5 billion. Vodafone maintains that no such tax is payable because the transaction took place in Cayman Island and not in India.

“When the Tata Group was buying Land Rover and Jaguar did UK authorities ask Tatas to pay such a tax? Or did Bharti Airtel pay withholding tax when it acquired the African operations? No. Then why should Indian authorities ask us to pay a tax on a transaction that has happened in another country. This is unprecedented,” said Mr Halford.

“Even if tax were to be payable, the question is who has to pay. The party who made profit is Hutchison. Why for four years has no one in the Indian tax department gone after Hutchison at all?” he poses.

The second thing that could result in a huge pay out by Vodafone is the proposed pricing for spectrum. The telecom regulator has suggested a fee of over Rs 1,700 crore per Mhz pan India on all operators with more than 6.2 Mhz. “We want a predictable environment to operate. Retrospective changes are troublesome for us,” Mr Halford says.

The immediate impact of these uncertainties is that Vodafone has pushed back its plans for a local listing in India. “The concept of IPO is something what we will look at. But it is not something we are rushing to do immediately because we need clarity on issues such as spectrum and tax,” he said.

But all this does not mean that Vodafone is going slow in investing in India. The company, which has already invested nearly $23 billion in getting into India, is bullish on the future. “India is one of the six major markets for Vodafone globally. We won't be committing so much money if we didn't see huge potential,” the CFO said.

Low-cost biz practices

The company is also taking the low-cost business practices developed in India to its global operations. “We are moving more activity out of Europe into countries like India and Egypt. I am also involved in standardising back-office operations. We now have a centre in Ahmedabad and another one in Pune. We are bringing more employment here. Marketing and advertising is good here and we are sharing it back in Europe,” Mr Halford says.

Meanwhile, the Supreme Court is expected to hear the tax case on July 19. That may decide whether the jewel regains its shine or not.

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