Finance Minister Pranab Muikherjee left the corporate sector a tad bit disappointed by announcing a 3 per cent increase in minimum alternate tax (MAT) which has now gone up to 18 per cent.
MAT is a tax levied on the companies that have book profit but do not have any taxable burden due to specific exemptions available under provision of the tax laws.
An increase in MAT will mean that companies will have to shell out more by way of taxes, which will hurt them.
While MAT has been increased, an across the board relief in terms of reduction of surcharge was given to the corporates that marginally reduced the corporate tax rate to 33.21 per cent.
Mukherjee said, “ I propose to reduce the current surcharge of 10 per cent on domestic companies to 7.5 per cent. At the same time, I propose to increase the rate of minimum alternate tax from the current rate of 15 per cent to 18 per cent of book profits. This will further promote inter-se equity among corporate taxpayers.”
“The increase in MAT will have a direct effect on infrastructure developers, telecom companies, information technology providers and power utilities as at present they enjoy a tax holiday under normal provision of taxation,” said Vikas Vasal, executive director, with consulting firm KPMG.
Pranav Satya, tax partner with consulting firm Ernst & Young said: “The fact that tax holiday due for expiry next year is not proposed to be extended, coupled with the increase in the minimum alternate tax rate from 15 per cent to 18 per cent, will be a dampener for the sector. However, the sector should benefit from the rationalisation of “export of services” rules, which should significantly facilitate a refund of the input services procured by the sector.”