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New Delhi, Feb 19: With corporate tax exemptions set to come under close scrutiny, the finance ministry is likely to review the structure of the minimum alternate tax (MAT) in Budget 2007-08, and bring it in line with the recommendations of the Parthasarthi Shome committee on tax policy and administration.
The committee headed by Shome, who is now the finance minister’s economic, had recommended that MAT be merged with dividend distribution tax. “A new MAT rate on corporation(s) should then be introduced as a tax equal to the aggregate of 0.75% of adjusted net worth and 10% of dividend distributed,” the report said. The adjusted net worth was defined as the capital employed by the company.
In a surprise move in Budget 2006-07, finance minister P Chidambaram had increased the MAT rate on book profits to 10% from 7.5%. While he increased the time span for claiming credit on the tax to seven years, he brought long-term capital gains of MAT companies under the tax net by including them in book profits.
A finance ministry study shows that one-third of all taxable companies, or 593 of them, recorded profits less than or equal to zero in assessment year 2004-05 and contributed just 9.23% of the total corporate taxes.
