I-T dept sends notices to nearly 150 foreign portfolio investors over MAT
MUMBAI: Income-tax authorities on Friday issued draft assessment orders against nearly 150 foreign portfolio investors (FPIs) asking them to pay minimum alternate tax (MAT), a move that is bound to reinforce India’s reputation for aggressive tax enforcement.
The 15-page draft assessment order sent to FPIs provides reasoning as to why MAT is applicable to them and how much they are required to pay. The draft orders relate to only one assessment year — the financial year 2011-12. Tax experts say if the revenue department extends the ambit of its quest to recover MAT by including other years the number of cases can potentially exceed 3,000.
People close to the development said the MAT demands range between Rs 1 crore and Rs 50 crore, depending on the capital gains made by the investors in that particular year.
Industry trackers say MAT is being levied on FPIs even as the recent budget clarified that it would not be applicable from the new financial year staring April 1, 2015.
“Some assessment orders have been passed (for FIIs investing from other than from treaty countries) levying MAT on FIIs, even though there is a proposal in the last Budget to neutralise such a levy. Unfortunately, the proposal is stated to be from April 1, 2015, whereas it should have been a clarificatory amendment, applicable to all foreign companies, and all past years also, especially since the legislative intent of MAT clearly shows that it was never intended to apply to foreign companies, including FIIs,” said Ketan Dalal, senior tax partner, PwC India.
Treaty countries refers to nations such as Mauritius and Singapore, which has a double taxation avoidance agreement (DTAA) with India, because of which they do not have to pay taxes in India as they are supposed to pay taxes in these countries.
Most of the FPIs are from the UK, the US and Indian authorities. With these countries, India has DTAAs under which capital gains can be taxed. However, the dispute over the applicability of MAT to capital gains remains.
Long-term capital gains, applicable to securities held for more than one year, are not taxable in India while short-term capital gains are taxable at 17%. Many lawyers and tax experts said MAT was only meant to tax manufacturing industries.
However, a person close to the development pointed out that the move to levy MAT on FPIs should not be perceived as the government’s stance.
“This (levying MAT on FPIs) is an interpretation of some assessment officers and not the stand of the Indian government or even the income-tax department. While the government has clarified that no MAT is applicable beginning the next financial year, we see that some intervention by the government may just happen within the next few months.” he says.
While a flat 20% MAT has been levied on long-term capital gains of FPIs, a separate 3% is being levied on their shortterm capital gains. Currently, FPIs don’t pay any tax on the long-term capital gains and pay about 17% on their shortterm capital gains.
The next logical step for FPIs would be to approach the dispute resolution panel (DRP) within the 60-days, something most of them are likely to do. “This is a rather unfortunate development for the FPI industry. The next step for FPIs from here is to approach either the commissioner appeals or the DRP for resolution of the matter by making appeal filings.
Resolving to file for DRP has the advantage that this way at least demands will be stayed until DRP decides upon the issue,” said Sameer Gupta, financial services — tax leader, EY.
According to experts, although currently the MAT demands are for one year, officials could include other years too. “The income tax department can open assessment for seven years within next six months, which means beginning from financial year 2009 to 2015. Although they may just first wait and see what happens before opening assessment for other years,” said an analyst requesting not to be named.
