Cos Are on The MAT, Again

Cos that de­clared div­i­dend last year or re­struc­tured debt will have to pay min­i­mum al­ter­nate tax

The Economic Times - - Companies: Pursuit Of Profit - [email protected] times­group.com

Mum­bai: Min­i­mum al­ter­nate tax, or MAT, a levy on the book profit of com­pa­nies that avail of ex­emp­tions and con­ces­sions, is now back to haunt com­pa­nies – both In­dian and multi­na­tion­als op­er­at­ing in the coun­try. Com­pa­nies that had an­nounced div­i­dend or re­struc­tured debt in the pre­vi­ous fi­nan­cial year will face this li­a­bil­ity in the cur­rent fi­nan­cial year. This is be­cause un­der IndAS, the new In­dian ac­count­ing stan­dard, both div­i­dend and debt re­struc­tur­ing could in­crease the book profit of com­pa­nies and would at­tract MAT. Of the BSE 500 com­pa­nies, 422 had an­nounced div­i­dend last year, ac­cord­ing to the ET In­tel­li­gence Group. Many com­pa­nies, in­clud­ing al­most all the BSE 100 com­pa­nies, are al­ready pro­vi­sion­ing for the MAT li­a­bil­ity. Listed ones will be com­pelled to dis­close this tax li­a­bil­ity in their con­sol­i­dated fi­nan­cial re­sults in the com­ing months. “Many com­pa­nies that are cov­ered by IndAS are pre­par­ing for the po­ten­tial MAT li­a­bil­ity con­se­quent upon the changes brought in by the Fi­nance Act 2017 in the rel­e­vant pro­vi­sions un­der the In­come Tax Act,” said Riaz Thingna, a di­rec­tor at Grant Thornton Ad­vi­sory in Mum­bai. “There may be a ma­jor im­pact on some com­pa­nies in spe­cific ac­count­ing treat­ment of is­sues like re­ver­sal of pro­vi­sions for div­i­dends in the fi­nan­cial state­ments and also in cases of cor­po­rate debt re­struc­tur­ing.”

In­dia changed its ac­count­ing stan­dards from GAAP to IndAS, which is on par with In­ter­na­tional Fi­nan­cial Re­port­ing Stan­dards, from April 2016. All com­pa­nies will re­port their con­sol­i­dated fi­nan­cial re­sults as per IndAS in the com­ing months for the first time. In­dus­try ex­perts said if

the tax de­mands are made, it could trig­ger a le­gal stand­off be­tween In­dian com­pa­nies and the govern­ment. “The im­pact may run into crores in tax de­mands and could also lead to a lot of lit­i­ga­tion,” said Thingna.

While the govern­ment has clar­i­fied the ap­pli­ca­bil­ity of MAT un­der IndAS in the bud­get, it fell short of ex­plain­ing the im­pact on com­pa­nies that paid div­i­dend or those that re­struc­tured debt.

Ex­perts said that since pro­posed div­i­dend is ac­counted for un­der In- dAS in the year it is ap­proved by share­hold­ers rather than in the year to which it re­lates, as was the prac­tice ear­lier, com­pa­nies have recorded a re­ver­sal of the pro­posed div­i­dend li­a­bil­ity on tran­si­tion to IndAS. This has re­sulted in a tem­po­rary in­crease in the net worth of th­ese com­pa­nies.

“While this was meant to be a tim­ing dif­fer­ence for recog­ni­tion of the div­i­dend li­a­bil­ity, this may now have some im­pact on the MAT com­pu­ta­tions of com­pa­nies,” said Sai Venkatesh­waran, head - ac­count­ing ad­vi­sory ser­vices at KPMG in In­dia. “Pos­si­bly one of the un­in­tended fall­outs of the re­cent amend­ments to the MAT pro­vi­sions for com­pa­nies us­ing IndAS, this re­ver­sal of div­i­dend li­a­bil­ity may be added to the book profit for com­put­ing MAT li­a­bil­ity over a pe­riod of five years.” Even for com­pa­nies with debt re­struc­tured in the pre­vi­ous fi­nan­cial year, MAT li­a­bil­ity would arise. The amount by which debt is re­duced after re­struc­tur­ing would be treated as in­come, in­creas­ing a com­pany’s book profit. “As the ef­forts in debt re­struc­tur­ing gather fur­ther mo­men­tum, com­pa­nies may end up record­ing the re­struc­tured debt at a sig­nif­i­cantly lower amount than be­fore and this dif­fer­ence be­ing recorded as a gain in the P&L, which in turn may at­tract MAT,” said Venkatesh­waran.

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