Budget 2010: Pranab cuts surcharge for corporates, ups MAT

With India Inc posting decent profits and advance tax collection (in December 2009) jumping 44%, the FM has given India Inc a little relief. While he has left the base rate of 30% the same for corporate taxes, he has cut the surcharge from 10% to 7.5%.
 
However, while he has given with one hand, he has taken away from the other. He has increased Minimum Alternate Tax (MAT) from the current 15% of book profits to 18% of book profits.

Currently, domestic firms earning total income of over a crore in a year have to pay corporate tax of 30%. Besides, surcharge of 10% and education cess of 3% are imposed on them, taking the total tax liability to 33.99%. Now, this comes down slightly to 33.2175%.

Was India Inc expecting this?

India Inc had been clamouring for a cut in corporate tax rates, or at least a cut in surcharge or education cess. Shabbir Motorwala, Director, B S R and Associates, KPMG had written in a column on Moneycontrol.com. "With India Inc posting decent profits and advance tax collection (in December 2009) jumping 44% the surcharge, education cess and higher secondary Education cess on companies need to be done away."

But not many were too optimistic on this happening. E&Y's Sudhir Kapadia had said in an interview to CNBC-TV18, " Whilst the much touted sharply reduced corporate tax rate of 25% in the DTC hinges precariously upon the 'revenue compensating' measures such as the Gross Assets Tax, Finance Budget 2010 could well consider a uniform tax rate of 30% for both individuals (at the highest slab) and corporates. This would mean a much delayed and over awaited removal of all kinds of surcharges notorious for sticking around much beyond their originally planned tenure."

Of course, a voice from within India Inc vehemently supported a rate cut. Seshagiri Rao, Joint MD of JSW had said in an interview to CNBC-TV18, "There is a large scope for reduction in corporate taxes because today the corporate are paying lot of taxes in fact depreciation rates have been bought down in the last Budget - that itself is a disincentive for investment as far as Indian corporate is concerned. There is a lot of income where it is not getting taxed like agricultural income - why can't it be taxed even Direct Tax is not addressing that point. I expect it will come down at least surcharges should go."

MAT's the way ahead?
What India Inc was really looking forward to was clarity on Minimum Alternate Tax. In the draft Direct Tax Code which was issued last year, the Govt had proposed some startling changes in MAT calculation. The FM has not made any announcements specific to this but he has said that the Govt aims to implement the Direct Tax Code by April 1, 2011.

Executive Director at PricewaterhouseCoopers (PwC), Dinesh Kanabar had told CNBC-TV18 in an interview then, "MAT proposals, which were put in DTC, is a sea change from what exists currently and very broadly it was moving on from a profit based tax to a asset based tax and that again on a gross levy of assets without taking into account any liabilities and more important not something which you could set off in future when you had a taxable income on a normal basis. As opposed to that currently the regime that you have is on the basis of income, the tax can be carried forward, is creditable when you have other taxable income."