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Mat fine print may tax losing firms

A proposal to change the existing norms of minimum alternate tax (MAT) might well turn out to be a major a thorn in the flesh for corporations with experts fearing that even loss making firms might be forced to pay taxes.

business Updated: Aug 13, 2009 22:32 IST
HT Correspondent

A proposal to change the existing norms of minimum alternate tax (MAT) might well turn out to be a major a thorn in the flesh for corporations with experts fearing that even loss making firms might be forced to pay taxes.

The direct tax code released by the government on Wednesday has proposed that all corporates, barring the banking companies, would be required to pay a 2 per cent MAT. Banking companies, according to the code, would be charged at 0.25 per cent.

MAT was introduced in 1997 to address inequity in taxation of Indian corporations.

Many companies, despite making book profits as per their profit and loss account, were hardly paying any tax because income computed as per provisions of the Income-tax Act, was either nil, or insignificant.

MAT, which is now charged at 15 per cent, was imposed to address this issue.

The new code has proposed that MAT would be calculated on the gross value of their assets. This would be a shift from existing norms, where MAT is calculated on book profits.

“The new tax code which seeks to replace the Income Tax Act 1961 would prove to be a double edged sword for the corporate world and this could prove to be a hindrance for those which do not register profits,” a senior member of industry body Ficci told Hindustan Times.

He also pointed out that most companies in the first few years of their operation are not in the profit zone. These companies were not required to pay any MAT under the current Income Tax Act.

According to the new code, value of gross fixed assets, value of capital work in progress and book value of all other assets would determine the value of gross assets of a company.

MAT was increased to 15 per cent from 10 per cent in the budget for 2009-10 disappointing industry associations as they were lobbying for a cut in the tax.