Corporate India welcomes MAT at 20% book profit

Written by fe Bureaus | Mumbai | Updated: Sep 1 2010, 05:07am hrs
India Inc may be a tad miffed that the corporate tax will be levied at 30% rather than the 25% envisaged in the earlier version of the Direct Taxes Code (DTC). However, the Minimum Alternate Tax (MAT) will now be charged on a companys book profits at the rate of 20%, rather than on its gross assets as was proposed earlier, is a welcome relief.

R Seshasayee, managing director, Ashok Leyland, says, The lower corporate tax of 30% is fine and the balance between direct and indirect taxes is being restored. However, over a period of time the government should be looking to bring down tax rates progressively and there should be a road map towards this end. Uday Phadke, president (finance), Mahindra and Mahindra (M&M), adds, Although we would have been happier with 25%, which had been suggested earlier, 30% seems to be fine.

Many corporates, who were anxious about whether the MAT credit could be carried forward, can now rest assured. Explains Gautam Mehra, executive director, Pricewaterhouse Coopers (PwC), The eligible credit can be carried forward for 15 years work and set off against future liabilities. However, Subba Rao Amarthluru, Group CFO, says Even a 20% MAT is too high, the rate should be pegged at 15%, which is half the rate of corporation tax. MAT was justified at a time when there were exemptions and deductions. Since these are being out, there is no place for MAT. He also believes that the government should consider the group taxation approach.

In what can be considered a positive step for corporate India, Dinesh Kanabar, deputy CEO and chairman Tax, KPMG points out, Companies setting up infrastructure projects should be particularly happy because the grandfathering of incentives is being continued and moreover, instead of the grandfathering being on the basis of the investments, the exemption is being allowed on profits.

In another important move, the government now proposes to tax indirect overseas transfers with more than 50% value in India. These will be regarded a transfer of assets in the country and will be liable to long-term capital gains tax on a pro-rata basis. This is a departure from the earlier stance, explains KPMGs Kanabar. PwCs Mehra points out that the DTC retains the dividend distribution tax, to be paid by corporates at 15%. However, Mehra believes that the CFC regime could be a negative step for those Indian companies that have set up overseas companies that derive investment income. The idea brings the Indian tax system in line with the CFC regimes in advanced jurisdictions.