The government is likely to ease the incidence of minimum alternate tax, or MAT, on infrastructure companies. The department of revenue plans to change the proposed direct tax code to exempt these companies from MAT for the first few years since they execute projects with long gestation periods. The code, in its current form, says all companies must pay MAT based on their gross asset value. In the case of infrastructure companies, this is very high since their asset base is huge. “It is one of the proposals we are looking at,” a senior finance ministry official told.
The direct tax code unveiled in August proposed 2 per cent of the value of gross assets as MAT on all non-banking companies and 0.25 per cent on banking companies. The value of gross assets is the aggregate value of fixed assets of a company, capital works in progress and the book value of other assets, after taking out the accumulated depreciation on fixed assets and the debit balance of the profit and loss account, if included in the book value.
MAT is also a final tax under the code, which means the amount of MAT paid in excess of the normal tax will not be allowed to be carried forward for claiming credit in the subsequent years.
Tax expert Aseem Chawla, partner with law firm Amarchand Mangaldas, welcomed the relook at MAT on infrastructure companies, but added that the classification of infrastructure needed to be well-defined and uniform. “The rationale of imposing MAT on the asset base is questionable, but if the government wants it then it should keep infrastructure companies out of the purview for at least five years.”
Infrastructure companies now enjoy income tax holiday for any block of 10 years in the first 15 years of operation. However, this tax holiday is not applicable on MAT.
Under the Income Tax Act, a company is required to pay MAT on its book profits if the tax payable on the total income as computed under the Act is less than the minimum. The Budget this year raised the MAT rate to 15 per cent from 10 per cent. The Budget also allowed tax credit determined under sub-section (2A) to be carried forward and set off up to the 10th assessment year immediately succeeding the assessment year in which thetax credit becomes allowable. It was earlier permissible till the seventh year.