Opinion: Govt must clarify quickly about MAT on FPIs

By: | Updated: August 5, 2015 10:09 AM

Sitting on the A P Shah panel recommendations on MAT will only add to the confusion. FM Arun Jaitley should tell the income tax department to make its position clear without any further delay

Arun Jaitley, MAT, FPISitting on the A P Shah panel recommendations on MAT will only add to the confusion. FM Arun Jaitley should tell the income tax department to make its position clear without any further delay. (Reuters)

serious frauds investigation officeThe government did well by not making the A P Shah committee report, submitted on July 24, on the contentious issue of imposing Minimum Alternate Tax (MAT) on Foreign Portfolio Investors (FPIs), public without studying it.

Making a report public without taking a final call on its suggestions, leads to unnecessary problems and the controversy over the draft Indian Financial Code (IFC) proposal of taking away the veto power of the RBI Governor is a clear example of that.

But, any further delay in taking a decision on the Shah committee recommendation would only suggest that the income tax department is reluctant to accept it because it is not in its favour, which may or may not be the case. In fact, senior finance ministry officials gave an indication after the submission of the report that the government response in this matter slated to be heard in the Supreme Court today, will make it clear what would be the income tax department’s stand on this issue.

The government has now sought more time to study the Shah panel report. Attorney General Mukul Rohtagi has told the bench headed by Chief Justice of India H L Dattu that the government needs additional time to establish its position — the apex court has postponed the hearing on the Mauritius-based Castleton Investment Ltd’s (CIL) appeal seeking clarity on the tax consequences on foreign companies which do not have a permanent establishment in India, to September 29.

The income tax department had sent notices to 68 foreign institutional investors demanding Rs 602 crore as MAT dues of the previous years, which has been now abolished from April 1 this year. This led to the controversy forcing the government to set up the Shah committee to look into it and the Central Board of Direct Tax telling its officials not to proceed further in these cases.

Going by the past experience, the income tax department would try its level to protect the revenue interest even if it comes at the cost of more confusion and costly delays. So, Finance Minister Arun Jaitley must persuade the taxman to decide on the next course of action based on the suggestions of the Shah panel quickly — even if it means outlining that the action of the income tax department was as per the law, but the government doesn’t want to pursue it, if he is serious about improving the uncertain tax atmosphere in the country.

This will also allow the government to hand over other legacy tax issues, including the retrospective tax amendments to the committee.

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