Corp ministry to seek review of MAT on LLPs

Ministry of corporate affairs will ask finance ministry's to review its proposal to impose a hefty alternate minimum tax on limited liability partnerships, a hybrid business form combining the features of company and a partnership form of operation.

LLPs, which have so far seen a lukewarn response from corporates as well as entrepreneurs received a major jolt when finance minister Pranab Mukherjee proposed to levy an alternate minimum tax of 18.5%. While the finance ministry's move is aimed at stopping large corporates from setting up LLPs as a medium of escaping the minimum alternate tax, corporate affairs ministry feels the move is wrongly timed and will further impact the growth of this business model.

"The move is deterrent for the small entrepreneurs and professionals in their pursuit to form LLPs," said an official in the ministry of corporate affairs, adding that a request to recall the proposed levy could soon be made.

While the ministry has less to argue in regard to the large enterprises which have misused the LLP format as a tax evasion tool as there are clear cases supporting the argument, it is clear that the small and medium enterprises as well as the professional groups should not be deprived of the advantages that LLPs sought to provide.

The corporate affairs ministry is working out on a detailed representation to the finance ministry which may argue for continuing the liberal tax regime for small business groups having a limited capital base and professionals willing to join hands to create bigger set up's.

"Misuse of the LLP format by larger enterprises should not cut down the opportunities for everyone," said the official, indicating that a dual tax structure for LLPs could be an suggestion that can be proposed.

The Limited Liability Partnership as a form of business organisation is a new entry into the Indian corporate world. The concept was popular in the US and Europe for the past 25 years. India passed the Limited Liability Partnership Act in 2008 providing the legal frame work for the formation of LLP. As on date, only 4432 LLPs have been registered in India.