MAT demon haunts India Inc

India Inc got a jolt in the form of a hike in rates for Minimum Alternate Tax (MAT). Companies paying MAT—instead of the regular corporate tax—could soon see a higher outgo under this he ad as the finance minister hiked rates from the earlier 10% to 15% After including the different surcharges, the effective rate would now be nearly 17%, tax experts said.

MAT is the tax that a cor porate compulsorily pays in case its corporate tax outgo—after accounting for all the ex emptions—is below a thresh old limit. In taxman’s parlance it is the tax that a corporate pays on its ‘book profit’, which is different from its profit in ‘the profit & loss’ account.

In India, MAT was intro duced about 15 years ago af ter the government found that despite substantial profits, a large number of corporates were not paying any tax.

Often MAT is criticised as an antithesis to any conces sion or exemption. Even if there is some justification for MAT, in a slowing economy it is more important for a com pany to have immediate cash flow, said Nishith Desai, in ternational tax and corporate law expert. “When more and more developed countries are reducing their tax rates to a level below 30%, a MAT rate of 15% definitely looks high er,’’ Desai added.

In India, a number of IT and infrastructure companies pay MAT instead of the regu lar corporate tax. “These (co mpanies paying MAT now) may end up paying a higher tax now,’’ said Sanjay Kapa dia, executive director , Price Waterhouse Coopers. For the corporates, there’s little cho ice but to accept the higher rates. “There’s nothing much one can do about it except ab sorb it,’’ said Venugopal Dho ot, chairman, Videocon gro up. A case of grin and bear it.

Relater Article: Check If It Smells Right