Expecting a reduction in MAT rate this Budget

Budget 2016: The expectations are running high as the Finance Minister Arun Jaitley is unveiling the Union Budget next Monday.

The recent events culminating in the withdrawal of MAT for FPIs and foreign companies not having a permanent establishment in India, strengthen the argument that the relief should also be extended to the domestic industry, said Riaz Thingna.

Budget 2016: The expectations are running high as the Finance Minister Arun Jaitley is unveiling the Union Budget next Monday. All eyes are on a slew of measures expected to be taken by the minister including the cut in corporate tax rate and MAT, removal of exemptions and support to starts-ups. Riaz Thingna, director, Grant Thornton Advisory discusses his expectations from the Union Budget with Siddhartha P Saikia. Excerpts:

Do you think exemptions should be extended beyond April 2017?

While the Government has declared its intention to withdraw exemptions over a period of time, it may not be an opportune juncture to withdraw all exemptions with effect from April 2017. Recently, the government has announced many initiatives for encouraging and boosting investment into the country through Make In India, Start Up India and Stand By India campaigns and these initiatives will need fiscal incentives and other supportive measures to achieve the success that they deserve. At this time therefore, a complete withdrawal of existing exemptions may disrupt the level playing field for existing businesses and it would be more appropriate to phase out exemptions over a period of time.

With the push for Make in India and Stand Up India campaigns, do you expect government to some out with more sops?

As part of the Start Up India campaign, the government has already assured the industry of the enhanced accelerated depreciation and beneficial treatment in capital gains tax. It appears therefore, that the Make In India and Stand Up India campaigns will also be encouraged by some sops and benefits. In my view, the sops if any, should be investment based and not profit-linked, if they are to achieve the desired results.

Do you think government should revisit MAT regime?

The arguments in favour of revisiting the MAT regime are substantive and extremely compelling. On the one hand, the government is introducing various measures to promote investment generation and the high rate of MAT reduces the potential of corporate India to invest more in business. Currently, the MAT rate of 18.5% plus surcharge and cess aggregating to almost 20% appears unreasonably high, especially in view of the fact that the government has promised a reduction of corporate rates to 25% by 2019.

The recent events culminating in the withdrawal of MAT for FPIs and foreign companies not having a permanent establishment in India, strengthen the argument that the relief should also be extended to the domestic industry. While the arguments for withdrawal of MAT are strong, one can atleast expect a reduction in MAT rate in this budget. It may be emphasised that it is a ‘now or never’ situation for the finance minister, both in terms of politics as well as economic environment.

Do you think the divided distribution tax (DDT) regime should undergo any structural change?

The DDT has been a subject matter of a lot of controversy and debate. The flutter in the recent weeks has been that tax in the hands of the shareholders may be introduced. That however would be disastrous as effective tax on profits may reach the level of 70%. It is inconceivable to expect that tax on both a dividend and divided distribution to continue simultaneously. At the same time, withdrawal of DDT in favour of a tax on dividend may not be possible in view of the fiscal crunch, as it would result in substantial loss of revenue. Under these circumstances, one does not expect any changes in DDT in the forthcoming budget.

This article was published in the Financial Express, to read please click here.