Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Just because Vodafone Group Plc is in no mood to settle a $2.2 billion withholding tax claim by New Delhi doesn't mean the latter can turn around and ask Li Ka-shing's CK Hutchison Holdings Ltd. to cough up $5 billion.

The more India engages in such antics, dragging on a five-year-old campaign of retrospective taxation, the greater the risk to its ambition of climbing 40 places in the World Bank's ease-of-doing business survey this year. It ranked 130th in 2016.

CK's Hutchison Telecommunications International Ltd. informed the Hong Kong stock exchange on Monday that it had received a penalty order from Indian tax authorities on Aug. 9. Include tax and interest demands made in February, and it appears India wants to help itself to more than 25 percent of CK Hutchison's cash hoard.

What a Nice Surprise! Not
Billionaire Li Ka-shing's CK Hutchison has been presented with a steep tax bill in connection with a 2007 sale of its Indian mobile-phone business to Vodafone
Source: Company reports

Here's the genesis of that claim: Li's company sold its mobile-phone business in the country to Vodafone a decade ago when the British carrier purchased a Cayman Islands-based investment firm that controlled, via other offshore entities, a 67 percent stake in Hutchison Essar Ltd.

New Delhi wanted to tax Li's windfall profit, but India's top court held that it couldn't, since the transaction was entirely offshore. Stung by that defeat, in 2012, India changed the tax code retrospectively, giving itself the right to impose a levy in cases of indirect transfer of assets.

When Retro Tax Spooked India
The benchmark equity index slipped 11 percent after the country changed its tax code retrospectively to target the overseas transfer of underlying Indian assets
Source: Bloomberg

In its 2014 election manifesto, Prime Minister Narendra Modi's party accused the then-government of "tax terrorism," giving rise to hopes that the dispute, which had spooked investors, was headed for a burial.

The opposite happened. Even as the Vodafone case dragged on, making it impossible for the carrier to sell shares to the public in its Indian unit, New Delhi celebrated the fifth anniversary of its original mistake with customary bureaucratic overreach.

Just before Christmas, tax authorities extended the Vodafone-Hutchison principle to the global funds management industry. If the U.S. state of Tennessee, which owns 15 percent of iShares India 50 ETF, makes a profit by selling some stock on Nasdaq, for example, then San Francisco-based BlackRock Fund Advisors is supposed to withhold a tax, which could be as high as 30 to 40 percent. When the money management industry rose up in alarm, claiming it would kill India-focused funds, authorities cancelled the harebrained plan.

Meanwhile, Vodafone, which is merging its India unit with rival Idea Cellular Ltd., is one step away from leaving the country. Still, as the tax demand on Hutchison shows, India's willingness to cut off its nose to spite its face is still intact.

Will it hurt Li? Although the billionaire tycoon doesn't have a major presence in India any more, he would surely prefer to end the matter. Otherwise, were Hutchison to even receive a dividend from an Indian company, the payout might be impounded.

That's what happened recently with Cairn Energy Plc, which too is battling a multibillion-dollar retrospective tax bill in India in connection with a 2006 reorganization. When Vedanta Plc, having bought Cairn's Indian operations, paid the seller a dividend on its 5 percent stake, New Delhi seized the $105 million outlay.

Li might be content to live with that risk. But the longer this retro tax lingers, the more damage it's doing to India.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Hong Kong at

To contact the editor responsible for this story:
Katrina Nicholas at