The Hindu Business Line : Bharat Chamber wants MAT scrapped

THE Bharat Chamber of Commerce (BCC), in a recent pre-Budget memorandum on central taxation to the Union Finance Minister, suggested scrapping of Minimum Alternative Tax (MAT) levied on the corporate sector, stating that it "unnecessarily puts additional burden on progressive and developing companies"

According to the BCC, though the idea behind MAT was that profit-making companies must pay some minimum tax and not be zero-taxed by availing themselves of tax incentives, such companies, though not paying corporate tax, are contributing to the exchequer in many other ways such as excise, duty, sales tax and octroi.

It is pointed out that MAT (at 7.5 per cent on book profits) has proved to be counter-productive, hindering promotion and growth of industrial activity.

In the chamber's viewpoint, provisions similar to MAT were brought on the statute book in earlier years, but had to be withdrawn owing to undue hardship and slowdown of economic growth besides other operational problems.

According to the chamber, although the economic scenario has not changed much in recent years, "MAT has not only been re-introduced, but its provisions have been made more stringent. Consequently, the benefits availed of by the industry on expansion/modernisation or setting up of new business, through capital investments, have actually been taken away by this provision".

Criticising the withdrawal of tax credit in a later year for payment of MAT in an earlier year as "totally unwarranted", it is pointed out that MAT was in the nature of a deemed tax, "and it is not fair to deny credit for such deemed tax paid by the company against the legitimate taxes payable in subsequent years".

The chamber has also sought restoration of the tax credit facility.

The BCC has also sought an amendment to Section 115JB to exclude revaluation reserves from the purview of the explanation in the above Section.

In the explanation, below the second proviso to Section 115JB, an amendment was made by the Finance Act, 2002, to provide that in arriving at the book profits with reference to which MAT is payable, "any amount that has been withdrawn from a reserve created before April 1, 1997, otherwise than by debit to the profit & loss account, will not be reduced from the profits".

The chamber's view is that this explanation was meant to apply to such cases where genuine profits earned by a company have been directly transferred or taken to a reserve account without appropriately getting reflected in the profit & loss account. It is felt that this should not apply to cases where assets have been revalued by creating a revaluation reserve (which does not require a debit in the profit & loss account), and subsequent withdrawal of the revaluation reserve when the revalued asset is depreciated.