On September 20, Finance Minister Nirmala Sitharaman said that the Narendra Modi government had decided to reduce Minimum Alternate Tax (MAT) some companies pay from 18.5 percent to 15 percent, with a few riders. Naturally, the section of corporate India that pays MAT and uses the government’s MAT credit system was happy. That happiness, it now appears, has been a year premature.
Because Parliament was not in session when the announcements were made, the necessary changes to the IT Act were effected through an Ordinance. Now that Parliament is in session, the government has, as required by the procedure, moved to replace the Ordinance with the Taxation Laws (Amendment) Bill, 2019 and so enshrine the revised tax rates in law. But between the September 20 (when the Ordinance was promulgated announcements were made and November 25 (when the Taxation Laws (Amendment) Bill was tabled in Parliament), there seems to have been some change in the government’s thinking – and with it, the government’s timeline to allow these tax concessions.
The Bill tabled in Parliament is worded just a little differently, effectively deferring a MAT-paying company’s ability to claim a lower tax rate of 15 percent by a whole year.
The Ordinance, when referring to necessary changes to the Section 115JB of the IT Act which relates to MAT, reads:
“Provided that for the previous year relevant to the assessment year commencing on or after the 1 st day of April, 2020 the provisions of this sub-section shall have effect as if the words “eighteen and one-half percent.”, occurring at both the places, the words “fifteen percent” had been substituted.” The relevant portion in the Taxation Laws (Amendment) Bill, 2019, however, reads thus: "Provided that for the previous year commencing on or after the 1st day of April, 2020, the provisions of this sub-section shall have effect as if for the words "eighteen and one-half percent." occurring at both the places, the words "fifteen percent." had been substituted." Five simple words -- relevant to the assessment year -- make all the difference. While the language in the Ordinance specifies that the provisions allowing for a lower MAT rate will apply from AY2020-2021 (which is FY20), the language in the Bill specifies that a company desirous of paying MAT at the lower rate of 15 percent can do so only from FY21. Minimum Alternate Tax (MAT) is the minimum amount of tax a company is required to pay if its normal tax liability, after claiming the various deductions available to it, falls below a certain limit. This limit is a certain percentage of the company’s book profit and is called the MAT rate. By delaying the applicability of a lower MAT rate of 15 percent by a year, the government has thrown many companies that were toying with opting for the lower rate for a loop. Experts say that while this move may effectively safeguard the portion of its revenues that arise from this tax for a year, it will only provide limited relief on the fiscal front. Some argue that this changed wording in the Bill may be an error of commission and that the government is likely to come out with a clarification and notification to correct it, but others point out that this change may well be deliberate. For one, the missing words fall in the middle of a paragraph – and if the contents of the Ordinance were to be replicated verbatim in the Bill, such a miss would be unlikely. Second, this is not the only area in which the contents or language of the Bill differ from the Ordinance. CNBC-TV18 has already reported on a few other major changes effected in the Bill, like a clause that lets the government expand the list of sectors to which lower taxes will not apply as and when it sees fit, a change to the definition of manufacturing that explicitly excludes mining, software development and cinematographic film production from the mix, and one stipulating that a company that falls foul of even one of the many attached conditions will become ineligible for the benefits of a lower tax rate in perpetuum.