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The Finance Ministry may tweak the provisions on Minimum Alternate Tax (MAT) in the forthcoming Union Budget to help the industry over come the impact of tax reforms in the US, say experts.
The purpose behind the introduction of MAT in the Income Tax Act was to bring all zero tax companies and to neutralise the impact of certain benefits/incentives.
Both the leading industry chambers, Ficci and CII, have suggested to Finance Minister Arun Jaitley to reduce the incidence of MAT which has "impacted significantly" the cash flow of companies who otherwise have low taxable income or have incurred tax losses.
Tax expert Amit Singhania, Partner at Shardul Amarchand Mangaldas, said that considering the recent slashing of corporate tax rate in the US, there is a need to revisit the corporate tax rate in Union Budget 2018-19, to be presented to Parliament on February 1.
"In order to encourage flow of funds (in form of dividend) from overseas subsidiaries, the reduction of MAT on such dividends is warranted," he said.
In a memorandum to the finance ministry, Ficci said that with the phasing out of exemptions and deductions available under the Act, "the burden of MAT should also be gradually reduced from the current levels of 18.5 per cent to a rate which will be commensurate with the phasing out of tax exemptions and incentives.
"It is recommended that dividend received from foreign company should be exempt from MAT just like domestic dividend is exempt from MAT".
CII, in its memorandum, suggested that MAT be abolished in view of removal of all incentives or, alternatively, the rate be brought down to 10 per cent.
"It is submitted that levy of MAT should be restricted to those incomes that are taxable under regular provisions and incomes that are exempt under normal provisions such as LTCG (Long Term Capital Gains) on sale of listed equity shares or incomes that are not taxable such as Capital Receipts, should be kept out of the ambit of MAT," CII said.
Prime Minister Narendra Modi had last week brainstormed with economists and experts on the state of the economy as the government looks to revive growth which is estimated to be at a 4-year low of 6.5 per cent in 2017-18, against the backdrop of introduction of the Goods and Services Tax (GST) regime.
Finance Minister Arun Jaitley is scheduled to present the Union Budget 2018-19 on February 1. It will be the last full budget of the current NDA government.