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Posted on Feb 01, 09:05PM | IBNS
New Delhi, Feb 1 : The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has suggested withdrawal of Minimum Alternate Tax (MAT) to extend benefits to special economic zones (SEZ) units as envisaged by the SEZ Act.
Chamber president Rajkumar Dhoot said that the imposition of minimum alternate tax on special economic zones has completely jeopardized the basic concept and intention of establishing an SEZ unit.
"Imposition of MAT will make SEZ units unattractive as incentives available outside will outweigh the tax benefits offered to an SEZ unit. SEZ units have been enjoying the advantage of zero-tax liability for five straight years and once the tax-free status goes, the equations will change completely," said ASSOCHAM.
Dhoot said if a unit is outside an SEZ and earns 10pc profit, it would earn Rs 10 on a turnover of Rs 100 and it would have to pay a tax of 33.5pc on profit, which would amount to Rs 3.5.
"But it would also get a minimum 3pc incentive that would amount to Rs 3. The same unit in an SEZ will have to pay Rs 1.85 as tax under the new MAT dispensation and will not gain any export incentive," he said.
Although exporters can take credit for minimum alternate tax, SEZ units exporting 100pc of their services /production cannot adjust it in the first five years of operation as they would have no tax liability to set it off against.
The chamber has also suggested increase in the limit of Alternate Minimum Tax (AMT) from the current level of Rs. 20 lacs to at least Rs 1 crore in the case of small firms.
"Alternate Minimum Tax (AMT) is made applicable to all non-corporate entities. Exemption is provided to an individual or a Hindu undivided family or an association of persons or a body of individuals, or an artificial juridical person, if the adjusted total income of such person does not exceed Rs.20 lakh. The limit is very low and is inconsistent with the increases limits in the other provisions like section 44AB," said Dhoot.
The chamber has further suggested that MAT should be exempted for infrastructure sector during the 80IA period during which it is eligible to claim the deduction under section 80-IA/IB.
An amendment should be made whereby any exempt income and profits eligible for deductions under Chapter VIA should be reduced from book profits for the purpose of computing MAT levy and the profits of AOP should be specifically excluded from book profits, it said.
"Infrastructure projects gets tax holiday under section 80IA for 10 consecutive years during first 15 years of its operation. However, during this period MAT need to be paid by the companies on book profit which to a great extent negates the tax benefit offered for these projects," said ASSOCHAM.
While there is a specific exclusion of profits of partnership firms, MAT is leviable on the profits of AOPs per se and the distributed profits of the member company, leading to MAT levy at both levels, it said.