Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: empanelment :: ACCOUNTING STANDARDS :: VAT Audit :: ARTICLES ON INPUT TAX CREDIT IN VAT :: TDS :: form 3cd :: cpt :: Central Excise rule to resale the machines to a new company :: due date for vat payment :: list of goods taxed at 4% :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ACCOUNTING STANDARD :: TAX RATES - GOODS TAXABLE @ 4% :: articles on VAT and GST in India :: VAT RATES
« News Headlines »
 India is moving towards a flawed GST
 ICAI to organise two-day international conference in Hyderabad
 Here's how to calculate tax payable on your capital gains
 Income Tax calculations for the financial year 2016-17
 CPE Events 17 October - 22 October 2016
 High Court raps I-T Department for wrong tax demand
  CBDT signs 5 advance pricing pacts with Indian taxpayers
 Finance ministry warns tax officials of action against GST protest
 Big changes for small units under GST
 Parliament’s winter session to begin on November 16 to expedite GST rollout
 Income-tax (27th Amendment) Rules, 2016 - 92/2016

Restructure MAT
February, 24th 2007

The countdown to the Budget 2007 has started and the financial press has begun its own quota of stories and speculation. Will major incentives be withdrawn? Will corporate tax rates be cut? Will fringe benefit tax be removed? Will the India Mauritius treaty be revisited? Imagination usually runs wild in the second half of February and of late pre-Budget seminars are arranged do discuss what is in store in the forthcoming Budget.

In some sense this is would the 60th Budget since independent India. Do the citizens of this country get something special on that day? One has to wait and see. At least every citizen who has been a witness to all the 60 budgets should get a reward of some sort. One of the stories doing the rounds is that the provisions relating to Minimum Alternative Tax (MAT) will the remodelled to align it with the Dividend Distribution tax (DDT).

The trigger for the proposal seems to be the Parthasarathi Shome report where a suggestion was made that MAT be merged with DDT and MAT should be at .75% of adjusted net worth of the company along with a 10% DDT.

In other words, MAT should be on the basis on the adjusted networth instead of the published profits which is the base today in Section 115JB of the Income Tax Act. Clearly such a proposal should be shot down on ab initio. Let us make no mistake that the origin of the Act is that it is a tax on income and is not meant to be a tax on anything else. In fact the definition of "income" is supposed to be so simple that no commercial man can misunderstand. But unfortunately today it is misunderstood in quarters without exception. Section 2(24) of the Act which defines "income" is the most complicated and clumsy provision covering 13 clauses and to get a full grasp of the provision one has to wade through a plethora of decisions on the subject.

If this is the fate of the term "income" which is the backbone of the law then less said the better for the other provisions. The final nail in the coffin was the introduction of fringe benefit tax in the law which has nothing to do with "income", but is still part of the Income Tax Act. If net worth is the basis for levy of MAT, it straightaway is not tax on income. It will be a tax on wealth since the net worth is represented by various assets created by the company. Are we then introducing wealth tax through the backdoor? If that be so let us be transparent about it and make it as part of the Wealth Tax Act instead of calling it MAT.

The author is Partner, Global Tax Advisory Services, Ernst & Young.

Secondly, the definition of net worth or capital employed as the case may be is difficult to define. Memory is still fresh on the long drawn battle which went up to the Supreme Court on what constitutes Capital employed in the context of the then Secion 80J of the Act. A company may have net worth built over a period of time but due to a bad year may have made losses. Is it fair to levy a supposed tax on "income" via the net worth route in a loss year? This would be highly illogical and bound to be contested.

Capturing the tax on the balance sheet basis as against the basis of "income" is canvassed on the ground that evasion may not be possible. Even this theory is unsound. The question of evasion is an issued of mindset and has nothing to do will law.

Unless we deal with the evaders strictly, we cannot solve this problem by tweaking the law. We have tried it in the past but without success.

Clearly the proposal speculated in the press on a tax on net worth has to be aborted forthwith. With the economy on a roll and tax collections on a continuous northward curve, there is no need to mess around with the basic framework of the law. Ideally this Budget should only announce the new tax rates and do nothing else.

R. Anand

Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Organic SEO Outsourcing Organic Search Engine Optimization Outsourcing Organic Website SEO Organic SEO India Website SEO India Organic Search Engine Optimization India Organic Internet SEO India Organic Web

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions