MAT on profit of companies

NEW DELHI: In a major concession to the industry, the government on Tuesday proposed in its revised draft of the Direct Tax Code (DTC) that the Minimum Alternate Tax ( MAT) would be computed on book profit of a company and not on the gross assets as suggested earlier.

"There may be practical difficulties and unintended consequences, particularly in the case of loss making companies and those having a long gestation period. It is, therefore, proposed to compute MAT with reference to book profit," the revised DTC draft said.

The industry had protested proposed imposition of MAT on gross assets saying this will require all companies to pay tax even if they are making losses or operating in a cyclical downturn.

An asset based MAT does not have a proximate linkage with a particular year's income or turnover and will lead to significant hardship since companies would not have the resources to pay the tax, industry representatives had argued.

Though the finance ministry's contention on imposing MAT on gross assets was that owing to tax incentives, the liability on total income, in many cases, had been found to be extremely low or even zero.

The revised DTC draft says income of developers of special economic zones (SEZ) as well as units therein will continue to get exemption under the proposed tax code. In the first DTC draft released last August, tax exemptions were restricted to the developers of SEZ and not the units in them.

"The provision to protect profit-linked deductions of units already operating in SEZs for the unexpired period will be incorporated (in the DTC)," the revised DTC said.