The government of India provided some relief to overseas investors on the contentious issue of minimum alternate tax (MAT). Finance minister Arun Jaitley said foreign portfolio investors (FPIs) parking funds in bonds, private equity funds as well as multinationals earning royalty or technical fee that face levies that are lower than the 20% minimum alternate tax (MAT) will not be subjected to this levy from April 1.
The changes, announced before the Finance Bill was put to vote, are in addition to the exemption given to FPIs from payment of MAT on capital gains made by them, while dealing in shares on Indian exchanges. At the same time, Jaitley clarified that the case related to MAT demand for period prior to the April cut-off will be decided by court.
“A big task for the debt FPIs was the exclusion of interest income from MAT liability .The concessional rate of 5% introduced two years back would have become redundant if MAT were to apply. Now, the FM has provided relief on this, and that is a welcome step. Of course, all this is for prospective applicability, effective April 1, 2015 and as has been indicated by the government, the past years will hence necessarily have to be decided by the judicial process through courts,“ said Sameer Gupta, tax leader for financial services, consulting firm EY India.
Similarly, private equity funds earning capital gains and interest income have been provided non-applicability of MAT. The FM also announced that for the implementation of special tax regime for off-shore funds, conditions such as minimum number of investors and threshold of participation of interest of members will not apply to sovereign wealth funds, government and pension funds.
No concession on black money: Jaitley refused to offer any concessions on the issue of dealing with black money and said that unearthing of illicit wealth will help the government reduce tax rates and rework slabs. “When the Budget proposals came up this year and last year, some of the members were asking me, “how do you squeeze black money?” When I announce a proposal that all right let us squeeze domestic black money, there is one way to squeeze it and this is a practice which is a global practice. Even in the US, if you have more than $10,000, you have to declare your social security number, which is their substitute for a PAN card,” the minister said, while dismissing suggestion that there is a need to do away with PAN for transactions of over Rs 100,000. Instead, he said the government is launching a mega campaign to issue PAN within 48 hours, including through an online facility.
Plan to clip RBI's power dropped
Jaitley sought to comfort the Reserve Bank of India, which had protested against government plans to take away some of its powers, and overseas investors beyond foreign institutional investors by shielding several of them from paying minimum alternate tax.
While initiating the debate on the Finance Bill, Jaitley announced his intent to drop amendments to the RBI Act, which would have taken away the central bank's role in handling government borrowings by setting up a new Public Debt Management Office. In addition, the plan to transfer some of RBI's powers to the markets regulator Sebi has also been dropped for the time being.
The moves follow a strong protest lodged by RBI governor Raghuram Rajan, which resulted in Jaitley stating that the government will ready a roadmap to set up a debt management agency.
