Doesn't make sense to let go MAT credits: Vedanta's Pallavi Joshi Bakhru

Pallavi Joshi Bakhru, group head taxation, Vedanta Limited, the metals-cum-mining conglomerate, explains why some large corporate groups may not avail of the lower tax rates anytime soon

In a bid to revive animal spirits in the economy and the sputtering GDP growth, the government last month announced a new corporation tax regime. Pallavi Joshi Bakhru, group head taxation, Vedanta Limited, the metals-cum-mining conglomerate, explains to Sudipto Dey why some large corporate groups may not avail of the lower tax rates anytime soon. Edited excerpts:

CBDT has clarified that MAT credit would not be available for companies opting for 22 per cent rate of corporation tax. What does that mean for large corporate groups in terms of transitioning to the new tax structure?

For large corporate groups like ourselves, it will continue to be attractive to stay with tax holidays and additional depreciation benefits as we have invested very heavily in capex. The good thing is that we always have the flexibility to move to the new regime as and when we have utilised the bulk of our tax benefits and MAT credits.

Does this reduce the tax advantage that companies with significant accumulated MAT credit expected from the recent Ordinance?

When it comes to tax,  it’s never enough! Especially, for resource companies. The FIMI — Federation for Indian Mining Industry — has put out data to reveal that the effective tax rate for mining companies is as high as 58 per cent because of the incidence of royalty, cess, et al. However, the lowering of the MAT rates will result in a faster burn of MAT credits and hence, cash savings on an immediate basis, which is very welcome.

Does it make more sense for large firms to avail of MAT credits before transitioning to the new tax regime?

MAT credits represent hard cash paid in the past. So at first blush, it doesn’t make sense for any company to let them go. But companies will need to do their own cost-benefit analysis and decide which regime works better for them.

By when do you expect companies to take a call on transition?

The Circular is very flexible and allows companies to elect to go under the new regime of reduced tax for the Assessment Year 2020-21, starting April 1, 2020, or any other AY thereafter. So companies can, based on their individual situations, choose to subscribe to the new tax regime from this financial year or in any other financial year thereafter, before filing their return. Of course, once they elect to go under this 22 per cent tax regime, they cannot exercise the option to come back and start availing tax holiday benefits and MAT credits. Hence, all companies have time until they file their returns next year to do the evaluation and based on their cost-benefit analysis decide whether to make the switch now or after utilising their tax holiday benefits and MAT credits.

Simply put, you can choose to subscribe to this scheme any time now or in the future, but once you make that decision, it is irreversible.

How do you assess the impact of tax rate changes on financial statements?

This will require the companies opting to go under the new regime to restate their deferred tax assets and liabilities, giving effect to the new rate @ 22 per cent as opposed to 30 per cent plus cess and surcharge as applicable. Of course, ETR (effective tax rate) will also come down, hence EPS (earnings per share) will go up.

The Vedanta group recently came out with a ‘Tax Transparency Report’ for FY19. How is this year’s report different from earlier reports?

Essentially, the data that we put out doesn’t change; it’s just the messaging. Last year, we added the concept of economic value generated and economic value distributed to give a sense of the impact beyond just contribution to the exchequer. This year has been our highest-ever contribution. We have also put out the cumulative amount contributed to the exchequer in the past six years and it is a sum of over Rs 2 trillion, representing an average of 44 per cent of our turnover over this period!

Has there been any easing on the tax litigation front?

While a slew of measures has been announced, such as the amnesty scheme for indirect taxes, enhanced monetary limits for the department to appeal at different appellate levels, and e-assessments, but we are yet to see a palpable change on the ground. I guess these things take time to translate.