In a relief to corporates, the government in its second draft on the Direct Taxes Code has said that the minimum alternate tax (MAT)?a tax paid by those enjoying various tax exemptions?would be calculated on the booked profits and not on the asset base as proposed by the first draft.
The discussion paper however, is silent on the rates of MAT which may cause a little confusion. The paper also mentions that in wake of the numerous exemptions enjoyed by corporates, the MAT rates need to be looked into. The MAT rates though, have been constantly rising for the last three years.
The discussion paper addressing the concerns raised by various stakeholders was put in public domain for comments. While getting back to the earlier mode, the paper said, ?There may be practical difficulties and unintended consequences, particularly in the case of loss making companies and companies having a long gestation period. It is, therefore, proposed to compute MAT with reference to book profit.?
Tax experts feel that the move to come back to the earlier method of taxation would is a positive one but the ambiguity on rates needs to be clarified.
?They have addresses the issues of the infrastructure companies, technology firms and all. That is a good thing. There is nothing on rates which is a little ambiguous,? Sunil Shah, partner with Deloitte told FE.
Sudhir Kapadia of Ernst and Young also welcomed the move and said, the removal of asset based taxation would be cheered by India Inc.
The rationale for proposing the asset based taxation was to plug the tax avoidance by the corporates who declared losses and circumvented the legitimate tax payments.
The corporates had an issue that MAT computation with reference to gross value of assets will require all companies to pay tax even if they are loss making companies or operating in a cyclical downturn.
?An asset based MAT does not have a proximate linkage with a particular year?s income or turnover. An asset based MAT on loss making companies would result in significant hardship since they would not have the resources to pay the tax,?the corporates had argued.