Remove MAT, Bury Retrospective Taxes, India Inc Demands

One of India Inc’s top demands is the abolition of minimum alternative tax or MAT in the upcoming Budget.

Ahead of next week’s Union Budget, corporate India is pitching for an overhaul of the country’s tax regime. Among their key demands is the abolition of the Minimum Alternate Tax (MAT) and clarification on the tax status for Special Economic Zones (SEZs) apart from the government burying the ghost of retrospective tax once and for all, reports Business Standard.

The abolition of the minimum alternate tax or MAT will put a significant cash flow in the hands of taxpayers to make much-needed investments.

If the corporate tax rate is to be reduced to 25 percent over the next three years, and investment and profit-linked exemptions and deductions are to be phased out, then there is a very good case to phase out MAT and ultimately scrap it

Daksha Baxi and Raghav Bajaj, Khaitan & Co to Business Standard

Another demand from India Inc is burying the ghost of retrospective tax. Despite several promises by the Modi government to this regard, the income tax department continues to send notices to taxpayers in legacy cases.

Vodafone, Cairn and Shell are among companies which have spent huge money in legal costs over tax notices.

Baxi and Bajaj say the government should also look at replacing the Dividend Distribution Tax (DDT) with compulsory dividend withholding tax regardless of the tax status of the recipient shareholder, except reduction due to the provision of the applicable tax treaty.

DDT is not available for credit to an investor in its home country against the local tax on the dividend received. This results in high tax incidence for investing in India: corporate income tax plus DDT plus tax on dividend in the home country.

Another key recommendation is that the government restore capital gains tax treatment for buy-back of shares. The additional tax payable by companies upon buy-back is on the difference between the amounts paid by the company less what it received from the shareholder.

Restoring the tax treatment in the hands of the investor would remove this anomalous situation.