MAT hike to 18% a negative move: Dinesh Kanabar

The Finance Minister, in the Budget today, announced a bumper for individual tax payers. He has changed the tax slabs for men, women and senior citizens. The highest tax slab has now been raised from Rs 5 lakh to Rs 8 lakh. Minimum alternative tax (MAT) has geared up form 15% to 18%. In an interview with CNBC-TV18, Dinesh Kanabar, a Tax Expert, gave his views on it’s effect.

Here is a verbatim transcript of an exclusive interview with Dinesh Kanabar on CNCB-TV18. Also watch the accompanying video.

Q: How do you assess this for corporates in general and individuals as well?

A: Koushik Chatterjee did mention about the fact about the surcharge or the MAT is going up. Somewhere in line this manifests two things. First is that there was a proposition in the direct tax code that the MAT will be asset base as opposed to profit base. The Finance Minister seems to be implicitly saying that he is not going to go down that path. That was an area of serious concern for most corporates because the more you create wealth, the more you are liable to pay MAT which is not what corporates wanted. That is number one.

I am surprised at the increase in the rate because if you look at the effective rate of tax which the Indian companies pay, at somewhere around 24-25% and if you have a MAT at 18% of the book profit, you are ticking away from the timing difference. Therefore, the original purpose why MAT was introduced is to do away with the anomaly of companies reporting high profits and giving dividends but not paying taxes seems to be simply forgotten. This is sort of negative.

Second thing is a change in the taxation of non-dissidence where a clarification has been put and of that a small clarification is going to impact several corporates that if you get income by way of fees for technical services and royalties, even if you do not have a business connection in India, you would be liable to pay taxes in India. So you don’t have a taxable presence but you still are liable to pay tax something which is a bit retrograde.

Q: What are other benefits for corporates?

A: On GST rollout, the fact that the Finance Minister chose not to take an interim year date and put it back by a year is welcome because until now it has been the steady representation to the Finance Minister, The GST rollout is not merely a question of intention or a question of getting an agreement among the state finance ministers. It is not a question of building IT infrastructure. One of the very important takeaways was this setting up of this technology group under Nandan Nilekani to allow the government to put the IT infrastructure board for direct and indirect taxes. If this gets going only then do we have a real hope of implementing GST by April 1. So one would have wished it happen earlier but could have happened in a very haphazard and a half-hearted manner.

One needs to see as Chatterjee mentioned a roadmap as to what is going to happening in this one year. One only hopes that six months later, we will start waking up.

On the other front on April 1, 2011 for DTC, that was the real stated date from day one. So GST has been pushed back but DTC, the rollout is on course. My interaction with the government is that a new code sort of a new amendment to the code as it has been presented thus far will be put up. It will get referred to select committee and thereafter the new code will develop. So that is on course and a very welcome step.