The Finance Ministry on Thursday defended the concept of gross assets tax proposed under the new direct taxes code, stating that it met both “efficiency” and “equity” considerations. The proposal to go in for a minimum alternative tax (MAT) based on gross assets may be “unconventional” for India, but certainly not from the point of view of the rest of the world, a senior Finance Ministry official said.NEW DIRECT TAXES CODE
Under the new direct taxes code, the MAT base is proposed to be shifted from book profits to the “value of gross assets”. The argument for the change in base is that a MAT on gross assets will encourage optimal utilisation of assets and, thereby, increase efficiency. The Central Board of Direct Taxes (CBDT) also maintained that the existing system of levying MAT on `incomes’ (currently MAT is applicable on book profits) had some “regressivity” and was not a good indicator for estimating the ability to pay taxes. MAT was originally prescribed to help the income-tax department get over the problem of defining taxable income. “The very fact that I have a problem with income and again I go back and relate to income as MAT base (which is what we were doing) …I am again taking a defective measure. Therefore, we are proposing to move to gross assets tax”, Mr Arbind Modi, Joint Secretary, Finance Ministry, said at a CII interactive session on new direct taxes code.
Elaborating on how the gross assets tax met the “equity” considerations, Mr Modi said that the argument was those who control larger resources should be expected to earn larger incomes and, therefore, it was logical that they should pay tax. However, in India only about 50,000 companies pay some form of tax even as about 4.5 lakh income-tax returns are filed by corporates with the tax department. “Nearly four lakh companies don’t pay any tax even though they hold large volume of resources. About 80 per cent of companies are not reporting profits, but hold large resources. “Their quality of reporting is extensive. But they are inefficiently using their resources. So our proposed move to bring in gross assets tax could be considered as some form of penalty to bring about efficient use of assets. It is exactly like the public sector divestment argument”, Mr Modi noted. On the issue of why MAT was not being done away with now that most exemptions will go under the proposed regime, Mr Modi pointed out that the existing exemptions are only being grandfathered.