Minimum Alternate Tax,
a saddle on an entrepreneur as well as century old industrialists.
“If you tax the productive segment of the population, they are going to think why should we set up factories if it is going to reduce our income.” Says Mr.Raghuram Rajan, Economic Advisor to the Prime Minister in an interview with ET on 30.07.2010.
There is subtle message in the words of Mr.Raghuram, “If you tax the productive segment of the population”, that “they are going to think why should we set up factories”, which is absolutely sensible.
Is he not right, at his heart?
Many endeavor to partner in the economic growth of the country, by investing hard earned money and taking loans in the process to meet capital / working capital requirements, risking their fortunes and setting up factories. Unfortunately, if intended situavations take u-turn, they would be forced to become defunct, in such economically unhealthy conditions, naturally nobody would wish to incur further financial losses, so as they are forced to become inactive for a short spell or longer period, waiting to restart the activity and meet their liabilities and recharge themselves in the process to be part in producing / manufacturing products or rendering need services, the country desperately in need of.
For the sake of revenue, should we need the real economic partners to the task?
The rate of Minimum Alternate Tax, as per the Direct Tax Code – 2009, will be
- 0.25 percent of the value of Gross Assets in the case of Banking Companies
- and 2 percent of the value of gross assets in the case of all other companies
as it has been proposed in the DTC that the “Value of Gross Assets” will be the aggregate of the value of gross block of fixed assets of the company, the value of capital works in progress of the company, the book value of all other assets of the company, as on the last day of the relevant financial year, as reduced by the accumulated depreciation on the value of the gross block of the fixed assets and the debit balance of the profit and loss account if included in the book value of other assets. So it is expected to pay tax even if they are loss making companies or operating in a cyclical downturn.
The “Incentive for efficiency” argument is that such loss making / defunct companies would shut down or restructure their businesses.
How many Public Sector Undertakings are ready to buy this argument?
Are our Politicians ready to go ahead at the cost of their vote bank., which is undisputed vested interest of them?
If at all the Revenue needs some taxes in the name of Minimum Alternate Taxes, the less painful proposal of computing MAT with reference to book profit is welcome along with the same should be allowed to be carried forward for claiming tax credit in subsequent years.
He also said that
· We have to be careful about our spending.
· We cannot have large-scale spending. After all, who’s gonna pay for it.
· We cannot have larger fiscal deficits
Seems, the Government is not interested in taking the heartfelt ground to earth reality.
Venkateswara Rao Sapare,