The Minimum Alternate Tax (MAT) regime has been effectively used by the tax authorities to increase effective tax rates of companies, particularly "zero tax" companies. The MAT regime has been in existence for almost for three decades since 1987-88 and has been amended from time to time to widen the scope as well as coverage.
There remain certain areas associated with MAT provisions, which need to be addressed in the larger interest of the tax payer community.
Though the MAT regime is in existence for more than three decades, still there is no clarity as to its applicability to foreign companies. There are conflicting judicial precedents on this issue. Many time foreign companies claim tax treaty benefits. In such a scenario, it is not yet clear whether such companies can be brought to tax under MAT regime. Any clarity on this aspect in the upcoming budget will be a step forward in providing certainty to the Foreign Companies.
Currently, all the companies are subject to MAT provisions. In order to provide freedom to new entrepreneur for testing and developing their strategy, it may be worth providing a threshold limit with respect to turnover and gross receipts or profitability for applying MAT provisions.
The current government policies encourage new infrastructure developments and also power generation. Many times it is imperative from commercial and business perspective to form a SPV company to undertake the infrastructure projects. SPVs are formed only for specific purpose and specific duration. In order to contain the cost of putting up the infrastructure facilities, it may be advisable to exempt such SPVs from MAT regime.
The budget will likely bring in some substantial changes to have impact on the Indian economy.
(The author Ashesh Safi is Partner, Deloitte Haskins & Sells.)