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Richa Mishra

New Delhi , Dec. 5

THE Minimum Alternative Tax (MAT) continues to be a contentious issue for India Inc.

The Federation of Indian Chambers of Commerce and Industry (FICCI) has urged the Government to `seriously consider' the withdrawal of MAT.

Arguing against the tax, the apex chamber said, "MAT has adversely affected the internal resource generation of the companies resulting in a severe blow to their plans of expansion and diversification. In nutshell, MAT is totally against re-investment and fresh investment. Serious consideration for its removal is required. In case it is not possible, then at least the same should be suitably restructured."

In its pre-Budget memorandum, the chamber stated, "MAT is in the nature of deemed tax and it is not fair to deny credit for such deemed tax against the legitimate taxes payable in subsequent years. Tax credit facility should, therefore, be restored."

The tax has been a topic of discussion amongst taxpayers as well as tax authorities and a key logic behind its introduction was that hugely profitable companies paying substantial dividends must also contribute something by way of taxes, chamber officials said. "However, this logic does not necessarily hold true in many cases, in as much as there are a lot of minimum sized companies, which do not pay dividend and instead, retain the earnings in the company for re-investment," FICCI said.

The fact that many of the big corporations that earn substantial profits do not pay any tax may sound incongruous but the larger picture needs to be seen to correctly understand this phenomenon, the chamber stated. "While, it may be true that these companies may not be paying any direct tax but what about the huge amounts by way of indirect taxes that they contribute to the national and state exchequer. They pay hefty amounts of customs duty on the imported equipment as well as excise and sales taxes on indigenous purchases and turnover," it pointed out.

What MAT does is to narrow the picture confining it only to direct taxes contributions, and consequently distorting the over all picture, a chamber official said adding, "It is a fact that the so-called zero-tax companies are among the largest contributors to the national exchequer and this fact needs to be clearly understood by the people who have wrong notions about the contribution of these companies to the overall economic development of the country."

Making a point, chamber officials said, there is no justification in making MAT applicable to power projects. Power projects, being covered under the purview of infrastructure projects under the Income-Tax Act, have been allowed exemption for a block of 10 consecutive years within the first 15 years after commencement of generation.

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