Corporate India has urged Finance Minister Arun Jaitley to exempt special economic zones (SEZ) developers and units from the levy of minimum alternate tax (MAT).

After being unable to get their way in recent years for removal of this levy, India Inc is once again making efforts to get this duty out of the income tax law in respect of SEZ developers and units.

A regime change at the Centre and new guard at the Finance Ministry has raised hopes among SEZ developers that the MAT levy would go in the upcoming budget.

“We have requested that MAT be totally removed for SEZ developers and units. For others, our suggestion is that the MAT rate should be scaled down to say 10 per cent,” said a senior industry representative who attended the pre-Budget meeting with Jaitley recently. This demand is seen as a big ask on Jaitley who may not deliver a populist Budget given the fiscal situation.

MAT HISTORY ON SEZs

The Government had in Budget 2011-12 imposed MAT of 18.5 per cent on SEZ developers and units.

This levy had come into effect on April 1, 2012, (from financial year 2011-12) amid protest from SEZ developers and units. The current MAT rate is 20.96 per cent and is applicable on book profits.

WHAT IS MAT?

Under the income-tax law, if a company’s taxable income is less than a certain percentage of the booked profits, then by default that much of the book profits will be considered as taxable income and tax has to be paid on that. Currently, the basis of levy of MAT is on ‘book profits’. However, the proposed direct taxes code wants to change the basis of levy to ‘gross assets’ instead of ‘book profits’.

INDUSTRY DEMANDS

The upcoming Budget should allow the aggregate of book loss and unabsorbed depreciation to be reduced while computing book profits, some industry associations have suggested.

They also want the weighted deduction available for research and development expenditure to be counted for computing book profit for MAT purposes.

Also, the long-term capital gain in respect of equity shares in a company or units of equity-oriented funds on which securities transaction tax (STT) has been paid should not be part of book profit for the levy of MAT, industry has suggested.

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