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MAT phase-out may kickoff in Budget

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The Union Budget is expected to provide relief to companies which come under them inimumal ternate tax (MAT). Sources who attended a presentation made by the finance ministry last month said the current tax framework has made MAT aredundant levy.
“While the government has already promised to lower the corporation tax rate further,it has also started work on ending tax rebates and tax holidays for companies.If foreign institutions canbe exempt from such a tax,even domestic companies should get a similar benefit,”the sources said.
There ducing gap between corporation tax and MAT is one of them a in reasons for the government to consider such a step. While the current MAT rate is 18.5 percent, corporation taxes have come down to 29 percent from 35 percent earlier.And this gap will narrow further as the government has promised to bring the tax down to 25percent by 2019.
Punit Shah, partner, Dhruva Advisors,said according to the road map laid down by the government,the corporation tax rates may be reduced along with phase-out of exemptions and incentives.“The logical corollary would be that MAT would be come redundant. It should be possible to reduce MAT rate immediately and phase it out completely over a period of three to four years,”he said.
There are other arguments favouring doing away with MAT.“Taxes like MAT The other proposals under consider a companies,at present.
In 2014, this issue had come under focus, when the tax authorities sent notices to various foreign portfolio investors (FPIs) demanding MAT on the capital gains they had made from Indian operations. Subsequently, the government had withdrawn the levy of MAT for FPIs and foreign companies who don’t have any permanent establishment in India.
MAT was introduced by the government to check practices that allowed companies with substantial income to escape the tax net. This was possible on account of various exclusions like dividend payouts and credits availed through tax incentive schemes. Although MAT was first introduced in 1987, it was subsequently scrapped. However, the provision was soon reintroduced in 1997. During the time, the rate for MAT was fixed at 12.5 per cent of the total book profit.
Business Standard New Delhi,12th January 2016

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