The decision to hike Minimum Alternate Tax (MAT) rate to 20% from 18% now is being seen as a retrograde step by tax experts. However, the Direct Tax Code (DTC) as a whole, which the government plans to introduce in Parliament on Monday, is being seen as a step towards taking the Indian direct taxation system to global standards, tax practitioners and top company officials said.
Increasing the MAT rate will become a burden for India Inc, more so in the context how the same has been increased over time. In the last few years, MAT rate has increased from a low of 7.5% on adjusted book profits to the current rate of 18%. This is now being proposed to be hiked to 20%.
Originally, DTC had prescribed for a MAT on the value of gross assets (0.25% for banks and 2% for other companies). However, after considering comments from stakeholders, the revised discussion paper has now gone back to levying MAT on adjusted book profits, Pranav Sayta, tax partner, Ernst & Young, said: “It is still unclear whether the carry forward of MAT credit and set-off against normal profits will continue. Further, it is unclear on whether SEZ profits will continue to remain excluded for computing the book profits . The revised discussion paper was silent on this aspect,’’ Sayta said.
Originally, MAT was introduced to make sure that the companies with large profits and declaring substantial dividends to shareholders but not contributing to the exchequer by way of corporate tax by taking advantage of various incentives and exemptions provided in the Income Tax Act, pay a fixed percentage of book profit as MAT. However, over time, the tax depreciation rates have declined. Further , DTC seeks to do away with most tax exemptions. “In this backdrop, a levy of MAT at a high rate of 20% appears unjustified,’’ Sayta said.
A section of the industry feels that the government is unlikely to cut its revenues from direct taxes through DTC. So the small hike in MAT was brought in to balance out the loss to the government from the cut in corporate tax rate to 30% from 33% now. “In the balance, the government will not see any loss in tax revenues,’’ an analyst at a domestic broking house said.
