MAT move sends `doer govt' signal to FIIs: Nishith Desai

The late Tuesday evening development wherein finance minister Arun jaitley  announced acceptance of Justice AP Shah’s recommendations that minimum alternate tax (MAT) should not be imposed on overseas portfolio investors retrospectively speaks volume about the government's intention and India's stature as  being a process-driven nation, says Pratibha Jain, Partner — Corp & Regulatory at Nishith Desai Associates.Speaking to CNBC-TV18, she said the fact that the government took this issue head-on and resolved it in favour of the investors should send a very positive message. "...demands have been made by the tax authorities and they had to figure a way of undoing this. And so to run through this process and having come out with a positive outcome in favour of the foreign investors is definitely very positive."Jain said the recommendation, which will be made public shortly, should have no ambiguity as far as the issue of applicability of MAT on capital gains made by FIIs prior to April 1, 2015 is concerned. Below is the transcript of Pratibha Jain's interview with Latha Venkatesh & Ekta Batra on CNBC-TV18. Latha: Is this a big sense of relief, does it erase the tainted image that this country plays fast and loose with its laws? A: A very big step in the right direction. It is the new government’s run with the whole process of having a difficult issue at hand where there was an Authority for Advance Rulings ruling (AAR), demands have been made by the tax authorities and they had to figure a way of undoing this and so in that sense them having run through this process and having come out with a positive outcome in favour of the foreign investors is definitely very positive and they went through a whole process to do it, they formulated a committee, the committee came out in favour, they got somebody like Justic AP Shah who is very well respected…(interrupted) Latha: That point is taken that they went through this process but it was ultimately what Menaka correctly called a manufactured problem. As the Shah committee report itself says, MAT was applied under the companies act and FPIs and FIIs should never have been there in the first place and as yet there is no guarantee that the advanced authority will not be inconsistent in its rulings in future as well. So is the image of retrospective legislation and inconsistent rule out of the way or are your FII clients not all that mollified? Did you touch base with any of them, did they sound that this country at least sets its house in order? A: Our investors recognise India as a democracy and all of us need to have that process of putting that whole explanation to our clients and putting it in perspective that there is a rule of law and there is separation of powers in India. We are not like the authoritarian regimes or a benign autocracy where things can happen in a jiffy. There is a process and there might be conflicting views from different arms of the government but the fact is that this government is there for another four years and the fact that they took this issue head-on and resolved it in favour of the investors, should definitely send a very positive message. What the tax authorities on the ground will do, in the circular that was released, clearly they have said that message has been sent to the field operating officers to apply this. So, at least on this issue as far as Foreign institutional investors (FIIs), Foreign Portfolio Investors (FPIs) are concerned, we should see at least the demands not being raised and if Supreme Court also comes out positively overall if the case is either withdrawn by the tax authorities or if Supreme Court comes out with a positive ruling, all of that will go in favour of at least resolving this issue. So all in the right direction, we are all waiting for the government to settle in and to resolve all these outstanding issues and in that respect a good positive step. Ekta: Do you think that the FIIs will get only fully convinced once there is a certain change which comes into the Finance Act and that might in fact be delayed because of what is happening in the parliament or is the circular enough to give them enough confidence? A: The finality purely when they call us from a legal perspective will come with the amendment because we are also seeing what is happening in the parliament, it is not easy to get something through. This could have been done through a circular, even the AP Shah committee had suggested you could do it through a circular or through the amendment to the act. They wanted to ensure the government wanted to ensure that this was a view taken across all parties, so maybe that is why they have opted for an amendment. So, yes that we will all hold our breaths to make sure that the amendment does go through but in the meantime still very positive. Latha: As and when the amendment comes, would you want to look at the reading or do you think that the Shah report is crystal clear? A: If they take on the recommendations of the Shah report and the clarification is included that this is not meant to apply to foreign investors, in this FPIs & FIIs, then at least for that aspect it should be sufficient.