MAT – A pre budget assessment
With the strong mandate in the
recent general election, the UPA
Government is working ahead on
budgetary amendments in its own
direction to top up the exchequer,
though various industry
representative agencies,
professional bodies, experts have
presented their own budget wish
list to the Government. Among
those proposals, Minimum
Alternate Tax (MAT) is the most
opposed tax provision from the
inception of its enactment, since it
operates like a double edged sword,
compared with the normal tax
computation provisions applicable
to the corporate assessees.
The role of Finance Minister,
during the ensuing budget will be
more vital, in two perspectives. The
first issue is that, having vast
expertise in managing the same
portfolio nearly twenty five years
back, he has to excel himself by
bestowing the feasible budget
proposals in this critical economic
scenario by taking the Indian
corporate sector into confidence.
Secondly, he has to strike the
balance between the budgetary
deficits to establish a strong
financial base for the next five
years to revamp the Indian
economy faster to face the counters
of global challenges.
ORIGIN & OBJECTIVE
The provisions of MAT were
originally drawn from the U.S
Income Tax law, when Mr Pranab
Mukherjee, took the reign of
finance ministry for the first term
during 1982 to 1984. The basic
concepts of the law was inducted
into our statute book in the Finance
Act,1983 by way of Section
80VVA. During those days the
provisions of MAT were enacted to
make sure that, the corporate
assessees who end up with business
loss under the normal provisions of
Income Tax, but earn a huge
amount of book profits based on
the adjustments to the profits
shown in the company’s financial
statements, are paying a fair
percentage of tax to Government.
Also, the need of implementing this
provision was thought of by the
Government, when the large
number of corporates started
accumulating a huge profit and
parting a considerable portion of its
surplus in the form of dividends to
their shareholders by paying a
negligible amount of tax or zero tax IMPACT ON INDIAN to step up ourselves along with
to the exchequer. ECONOMY developed countries on theoretical
The assessment of post paradigm.
During the days when this tax implementation affect on industry
regime was implemented, the is more essential at this moment, 4.Though this provision was
revenue of few renowned when the economy is turning its implemented successfully in the
corporates was more than the gross phase towards global slowdown. In Finance Act, 2000 it does not mean
receipts of some of the states. This this situation, the Government can that the system of tax collection has
made the Central Government to do radical changes in the budget, if been rationally canalized. In one
think strongly on implementing the it really wants to booster Indian way, the Government induces the
MAT to ensure regular tax inflows economy by amending MAT investors by allowing various
without any hassle. Later on, the provisions suitably or by scraping incentives for several years to boost
original provision was repealed and this parallel tax system. Here are the different segment of industry by
re introduced under Section 115J, some of the points which highlights allowing deductions under Section
115JA and finally Section 115JB the adverse impact on Indian 10, 10A,10B etc. and on the other
was added in the Finance Act,2000 economy, if MAT continues to be side, the effect of the same is
which continues as of date. un amended. neutralized by provisions of MAT.
This type of tax system will reduce
All these provisions were strongly 1. The studies have proved that the the efficacy of an economy,
opposed by the corporate assessees zero tax companies are also especially the countries which are
because of several inherent contributing a huge amount of tax developing like India.
deficiencies at each stage of their to the public exchequer in an
implementation and were indirect way through local sales 5. Many corporates select their
withdrawn by the Government tax, central excise, import duty, investment area or sector based on
several times in between, just to service tax, CST etc. which is tax incentives. There are numerous
pacify the assessees tentatively, considered as a substantial companies which spend crores of
before giving the present shape of contribution though they are not rupees on backward area projects
tax structure. In the Finance Act, paying the direct taxes based on and are rendering corporate social
2007 the MAT percentage was normal Income Tax provisions. A responsibilities by creating rural
hiked from 7.5% to 10% of the sound tax legislature should not employment, rural development
book profit apart from narrowing comprehend on its own policies on and indirectly joining the hands
few relaxations which shows the leakage of taxes when assessees with the Government in nation
Government’s parasitic approach in claim the legitimate tax exemptions building. All such tax sops will not
augmenting the tax collection. or rebate resulting to claim losses fetch the true benefits to such
or end up with paying zero tax. corporates, if MAT provisions are
CONCEPTS OF MAT made applicable on them.
The procedure of computing the tax 2. Every Government has its own
under MAT is quite different from face in the global economy. In Even after having a long standing
normal tax computation. The order to create the investment history for MAT provisions, the
Minimum Alternate Tax is a prospectus and energise the capital Central Government remained
parallel tax system under which market activities, the fiscal laws unsuccessful in addressing several
every corporate assessee is should provide abundant built in technical hitches. While a
responsible for paying the higher of opportunities to induce the foreign number of countries across the
regular tax or MAT after exercising investors. Whereas, with the world have either refrained this tax
the stipulated adjustments to the net current tax structure, the foreign regime because of its complexity or
profit as shown in the profit and companies are taxed at 40% instead implemented this successfully by
loss account prepared in of 30%, presumably because they advocating the hidden crux, India is
accordance with the provisions of do not declare and distribute one among such other counties in
Part II and III of Schedule VI of the dividends in India. Apart from this which a simple system of tax on
Companies Act, 1956. Under differential tax policy, the foreign book profits could not find its feet
regular tax computation procedure, companies are also assessed under properly. In light of this views, the
the taxable business profit is MAT, which indicates a sheer Government has to phase out the
arrived by adding all expenses negligence on foreign investors. MAT step by step or reduce the tax
disallowed and then by allowing all This will lead to shift the foreign drastically. Mere adoption of a
deductions stated under various investment opportunities to other particular perception has no value,
provisions. Whereas, under MAT, countries across the world. unless it is tuned and tested in the
the assessee will always end up in relevant economic locale.
paying the higher tax since the 3. All over the world, including We have to wait and see for
provision assumes that all the India, the post implementation another week, to know whether the
general allowances or exemptions affects of MAT or any other form finance minister will change his
are deemed to have been given of tax in whatever form it exists, mindset in his second term to give
while arriving such book profit are being considered as, it has the bounties to MAT payers over past
which generally be allowed to the dilutive affect on economic growth several years.
assessee under the regular method rather than functioning as an
of tax computation.. instrument to the Government to PRAMOD SHRIKANTH D
mobilize the tax. Moreover, it
(The author is a Bangalore based
seems our Government adopted this
Chartered Accountant)
provision with equivocal thinking
Author and Address
Pramod Shrikanth D
# 368, Daithota House,
II Floor, 7th Cross,
Prasarabharathi Layout,
Dasarahalli – Hebbala
Bangalore - 560024
Mobile : +91 9900975290
Telephone : 080-22116413

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