FM ends con­fu­sion on MAT

Re­duced rate ap­pli­ca­ble from cur­rent FY; fi­nal call on fis­cal deficit will be taken at RE stage


The lower min­i­mum al­ter­nate tax (MAT) rate an­nounced as part of the cor­po­ra­tion tax rate cuts in Septem­ber will be ap­pli­ca­ble from the cur­rent fis­cal year (2019-20 or FY20), Fi­nance Min­is­ter Nir­mala Sithara­man clar­i­fied on Mon­day in the Lok Sabha af­ter an er­ror in the Tax­a­tion Amend­ment Bill spooked com­pa­nies.

For the se­cond time in less than a week, Sithara­man also spoke of the chal­lenges in main­tain­ing fis­cal dis­ci­pline, while com­par­ing the Modi gov­ern­ment’s fis­cal record with that of the Man­mo­han Singh gov­ern­ment. Sithara­man said a fi­nal call on the fis­cal deficit will be taken at the Re­vised Es­ti­mate stage.

The Tax­a­tion Law Amend­ment Bill, 2019 was in­tro­duced and passed in the Lok Sabha on Mon­day. It had said the lower MAT rate of 15 per cent, down from 18.5 per cent, will be ap­pli­ca­ble from the next fi­nan­cial year (2020-21 or FY21), while the Or­di­nance had said the lower rate will be ef­fec­tive from the cur­rent fi­nan­cial year. The cor­rec­tions were made by way of an of­fi­cial amend­ment, chang­ing FY21 to as­sess­ment year 2020-21.

“The in­ten­tion has al­ways been to ap­ply re­duced MAT rate from the year 2019-20. That er­ror will be cor­rected through an of­fi­cial amend­ment now. The orig­i­nal in­tent was to ap­ply it from

2019-20, which con­tin­ues to be the case now,” said Sithara­man. In or­der to pro­mote growth and in­vest­ment and at­tract fresh in­vest­ment in the man­u­fac­tur­ing sec­tor, the gov­ern­ment through an Or­di­nance pro­vided do­mes­tic com­pa­nies with an op­tion to pay tax at the rate of 22 per cent if they do not claim de­duc­tions and ex­emp­tions.

Be­sides the cor­po­ra­tion tax rate was cut to 15 per cent for new man­u­fac­tur­ing com­pa­nies set up af­ter Oc­to­ber 1, 2019, without any de­duc­tion or ex­emp­tions and start man­u­fac­tur­ing be­fore April 1, 2023.

Fi­nally, the MAT rate was low­ered to 15 per cent from 18.5 per cent for com­pa­nies that con­tin­ued to claim ex­emp­tions. MAT is the min­i­mum amount of tax re­quired to be paid by a com­pany, in case its nor­mal tax li­a­bil­ity af­ter claim­ing de­duc­tions falls be­low a cer­tain limit. MAT credit will also not ap­ply to com­pa­nies opt­ing for the new rates.

“The gov­ern­ment has cor­rected the mis­match in the dates on the ap­pli­ca­bil­ity of MAT rate and has made it in con­so­nance with the date given in the or­di­nance” said Rakesh Nan­gia, man­ag­ing part­ner, Nan­gia An­der­sen Con­sult­ing.

“The lower MAT rate will be ap­pli­ca­ble from April 1, 2019, which is in­deed a wel­come step. This had caused lot of con­fu­sion,” he added. Re­gard­ing fis­cal deficit, Sithara­man said, “I fully ap­pre­ci­ate the con­cerns that the hon­ourable mem­bers have raised re­gard­ing the fis­cal deficit, that what hap­pens to fis­cal deficit as there is rev­enue fore­gone of ~1.45 tril­lion be­cause of the cor­po­ra­tion tax cuts. Yes, I am aware of those con­cerns. We will take a fi­nal de­ci­sion on the fis­cal deficit at the Re­vised Es­ti­mates stage.” Al­lay­ing fears of cor­po­rate tax re­duc­tion im­pact­ing rev­enue col­lec­tion, Sithara­man said gross di­rect tax col­lec­tion in­creased by 5 per cent till Novem­ber. His­tor­i­cally, max­i­mum col­lec­tion of di­rect taxes hap­pens in the last quar­ter of the fis­cal, she added. Sithara­man said the av­er­age fis­cal deficit un­der the UPA-II gov­ern­ment was 5.5 per cent, while dur­ing the Modi gov­ern­ment’s first term was 3.68 per cent of gross do­mes­tic prod­uct.

“We have man­aged to keep fis­cal dis­ci­pline com­pletely in­tact and main­tained the av­er­age fis­cal deficit well un­der 4 per cent,” she said.

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