Foreign investors get MAT boost; SEZs unhappy at status quo

Finance minister Arun Jaitley on Saturday decided to give an exemption of minimum alternate tax (MAT) to capital gains earned by foreign portfolio investors (FPI). However, a reduction in MAT rate for special economic zones (SEZs) and micro, small and medium enterprises (MSMEs) continued to remain a dampener for the domestic industry.

Finance minister Arun Jaitley on Saturday decided to give an exemption of minimum alternate tax (MAT) to capital gains earned by foreign portfolio investors (FPI). However, a reduction in MAT rate for special economic zones (SEZs) and micro, small and medium enterprises (MSMEs) continued to remain a dampener for the domestic industry.

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Rajesh H Gandhi, partner, Deloitte Haskins & Sells LLP said, “That FPIs will not be liable to pay MAT is a welcome clarification and it will remove the uncertainty created due to the recent tax notices issued on FPIs asking them to pay MAT.”

MAT was originally implemented to bring large domestic corporate into the tax net who did not pay taxes by making use of various incentive schemes. Tax authorities had recently sent notices to foreign portfolio investors, asking them to explain why the provision should not apply to them.

The provision would have raised their long term capital gains tax from zero under the current regime to around 20%.

PHD Chamber president Alok B Shriram said, “We were expecting more in the MSME segment in terms of scalability and financial problems. The high expectations on reduction in MAT have also remained unfulfilled.”