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Government mulls abolishing minimum alternate tax after corporate tax breaks are phased out
March, 04th 2015

India could abolish minimum alternate tax (MAT) once corporate tax exemptions are eliminated as part of the government's plan to reduce the corporate tax rate to 25% from 30% and provide an uncluttered and non-adversarial tax regime that will help draw investments.

The reduction will start in FY17 and take place over four years. Also, in order to give further comfort to overseas investors, the government will soon clarify that dividends issued by foreign subsidiaries in India to their parents will not be taxable locally.

"If you see how MAT calculation actually works, it starts with book profits... Why is book profit different from taxable profit? It is different primarily because of exemptions or because of depreciation being differently booked in the books and differently allowed under the tax code," Central Board of Direct Taxes chairman Anita Kapur said.

"So if all our exemptions go, there will be no difference between the book profit and profit that you offer for taxation purpose. So MAT itself will become irrelevant once all the exemptions go," she said. MAT is currently levied at the rate of 18.5%. Asked if there will be no MAT after 2019, Kapur said that finance minister Arun Jaitley has said all exemptions will be phased out within four years but some exemptions may need to stay such as those for Andhra Pradesh.

Exemptions also have sunsets and will have to be grandfathered. "The minister will have to look at that... During the year he will come out with a roadmap on what will continue and what will be phased out," she said at a media interaction.

Kapur said the board will issue a circular to clarify that overseas dividends will not get impacted by the Section 9 retrospective amendment to tax indirect transfers. The law will be limited to transfer of assets. "We will clarify that dividends that come in the second or third stage will not be taxed," she said.

She said the government would have adequate safeguards in the proposed black money law. "We are going to build in a rebuttable presumption. Court will also give you an opportunity to explain. If you have legitimate money for some reason, which I can't foresee now, he will have an opportunity to explain," Kapur said. "But let's see how the law finally comes out. We agree that there are laws of principle of natural justice will be followed," she said, adding that the government is working out a compliance window.

Kapur said the government would bring an effective benami transactions law to tackle domestic black money.

"We will bring a more forceful benami law... We are trying to address problems in the existing law. The bill provided for confiscation. But, there was no provision for how is a notice to be given...Principles of natural justice were not being followed, authority to confiscate did not have powers of a civil court, making it difficult to implement," she said.

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