In a move to pacify investors, the
income tax department has said in a statement that it will hold off from issuing new demands to foreign investors for payment of the controversial minimum alternate tax or MAT, and will take no coercive action to pursue claims that have already been filed.
1) The statement from the Central Board of Direct Taxation comes after the imposition of retrospective MAT tax claims totalling Rs 602 crore had sparked an outcry among foreign companies and investors.
2) Seen as big u-turn by the government, it comes after continued sell-off in the financial markets by FIIs since April on the apprehension that the government will impose a 20 per cent Minimum Alternate Tax on profits earned by them.
3) Overseas investors have reduced their exposure to Indian markets, pulling out over Rs 12,000 crore from it so far this month, fuelling concern that MAT would drive them away just as many are poised to pour money into India based on Prime Minister Narendra Modi's promise of a more business-friendly environment.
4) Intended to ensure companies paid a minimum amount of tax in India, tax authorities have also been imposing MAT on foreign portfolio investors.
5) Last week Finance Minister Arun Jaitley announced the appointment of a committee headed by Justice AP Shah to look into MAT disputes as well as some other taxes.
6) In recent weeks, many foreign investors have received notices requesting their MAT calculations for the financial year 2011-2012, with the tax office saying it would apply the tax to previous years. The tax department has so far issued notices to 68 FIIs.
7) The government has already said it will not levy MAT on capital gains made by FIIs and foreign portfolio investors from this fiscal. But it said tax demands on past incomes could only be reversed by the Supreme Court.
8) In India, foreign investors have so far paid 15 per cent on short-term listed equity gains, 5 percent on gains from bonds, and nothing on long-term gains.
9) US and European investor groups have sought that the Indian government urgently clarify its tax regime for foreigners, with tax experts saying that international funds and banks could face a bill of as much as $8 billion (Rs 51,000 crore).
10) Some foreign investors have begun legal proceedings in the Supreme Court. UK-based Aberdeen Asset Management has challenged the MAT claim in the Bombay High Court. Mr Jaitley has said the government is looking for an early hearing of those appeals. (NDTV)
