True to his reputation as a business- and people-friendly Minister, the Finance Minister, Mr Pranab Mukherjee has conceded to most of the demands of stakeholders on the proposed Direct Taxes Code (DTC). The revised discussion paper on DTC, released on Tuesday, has addressed the concerns on all the nine areas that were brought to the notice of the Finance Minister. It has sought to restore the computation of minimum alternate tax (MAT) on book profit basis.
The DTC had proposed MAT on gross assets basis — a proposal that was strongly opposed by corporate India.The objectives of the DTC(Direct Tax Code) were stated as broadening the tax base, minimizing exemptions and achieving horizontal and vertical equity.The proposal to introduce a new form of MAT on gross assets was stated to be a step towards expanding the tax base for companies to ensure a minimum guaranteed tax col ection from al corporate taxpayers.
As per the DTC, a company has to pay tax, either as per normal provisions of the DTC or as per MAT, whichever is higher. Further, MAT was proposed at 2% of the value of gross assets in a company (0.25% of the value of assets in case of banking companies). Furthermore, MAT was a final tax and there was no mechanism for credit of MAT against normal tax in subsequent years.
The levy of MAT on the asset base raised strong apprehensions in corporate circles. Some of the concerns were in relation to the levy of MAT on loss-making companies, companies with long gestation period, companies under liquidation etc. The argument of incentive for efficiency was not reasonable in such cases. The levy of MAT on the asset base also contradicted the investment-linked incentives proposed in the DTC.
In view of the above, the RDP(revised discussion paper) proposes that the current approach of levying MAT, with reference to book profit, would continue.
The Government hopes to introduce a Bill on the proposed DTC in the Monsoon session of Parliament.