FPIs on the mat again as Arun Jaitley, Shaktikanta Das say no relief

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New Delhi | Published: April 7, 2015 1:49:12 AM

‘Legitimate demand not tax terrorism, and India not a tax haven’

Arun Jaitley, overseas asset acquisition, energy importsBoth finance minister Arun Jaitley and revenue secretary Shaktikanta Das said that the MAT waiver for FPIs announced in the 2015-16 Budget would only be applicable prospectively, that is, from financial year 2015-16. (PTI)

The government on Monday asserted that foreign portfolio investors (FPIs) cannot get any relief from the minimum alternate tax (MAT) demands for past years unless the court bails them out. Both finance minister Arun Jaitley and revenue secretary Shaktikanta Das said that the MAT waiver for FPIs announced in the 2015-16 Budget would only be applicable prospectively, that is, from financial year 2015-16.

What the FPIs had sought is a retrospective exemption and what the government granted is a prospective exemption, Das said, refusing to comment on whether a retrospective waiver could be granted too.

The comments of the top functionaries of the government, according to analysts, make it clear that the MAT demands worth billions of dollars already made by the taxman, some of which had got endorsed by the Authority for Advance Ruling (AAR), would be pursued.

Rahul Garg, who leads the direct tax practice in PwC India, said that when notices are issued to reopen the cases (assessments), taxpayers can certainly seek remedy through judicial intervention. “In the present case of MAT on FPIs too, many of the taxpayers may chose to do so,” said Garg.

He also said that the industry would certainly welcome retrospective application of a benevolent change in the law.

While reports said the demands total $5-6 billion, sources from the income tax department told FE that the amounts sought could be much less.

Addressing the annual conference of industry chamber CII, Jaitley said legitimate tax demands could not be construed as “tax terrorism”. “The converse of tax terrorism is (also) not a tax haven,” he said. “Therefore, let it be clearly understood that India is not so vulnerable that every legitimate tax demand can be considered as tax terrorism.”

Officials from the Central Board of Direct Taxes (CBDT) said no centralised data on the tax demands made on FPIs was maintained. Field officers said it was “highly improbable” that the total demand could go up to $5-6 billion.

Das explained that some of the foreign institutional investors had approached the AAR, which ruled that MAT was applicable in those cases and hence the tax officers went ahead with the demand. “FII income is exempt from MAT with effect from April 1, 2015. The government has already amended the law to provide for prospective exemption and has made it clear that legal recourse is open to the FPIs,” said Das.

MAT is levied on companies, the tax outgo of which falls below 18.5% of the book profits on account of various exemptions. In such cases, the reported book profit is considered as the taxable income on which MAT is charged. Finance Bill 2015 proposed to amend Section 115JB of the Income Tax Act prospectively to clarify that income from transactions on listed securities will be excluded from the ambit of MAT. The tax regime thus applicable on FIIs’ trading in listed securities is of capital gains tax. If securities are sold within a year, 15% short-term capital gains tax is chargeable. No long-term capital gain tax is levied on sale of securities held for more than a year.

Jaitley said taxes that were not payable should be challenged in the proper forum. “Relief probably may lie in the judicial process and relief may lie with the legislature for the future, but certainly newspaper reporters can’t provide that relief,” he said.

Referring to the amendment to tax past deals retrospectively in the UPA regime, which made headlines and affected India’s image, he said an emerging economy like India could not afford to indulge in tax terrorism or aggressive tax laws.

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