Govt to pacify foreign investors, resolve tax row

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Arun Jaitley
Photo: Trilochan S Kalra

The government on 7 May set up a committee to suggest ways and means to resolve MAT dispute and other issues in a move to assuage foreign investors affected by bills for several years of taxes on previously taxed gains.

Foreign funds bring with them worry that Asia’s third-largest economy will drive off foreign investors with its minimum alternate tax (MAT), while foreign funds chalked up a big single-day sales of Indian shares and bonds in more than a year on Wednesday.

Finance minister Arun Jaitley said in Parliament that the government was faithful to three principles: certainty of taxation, avoidance of retroactive taxation and enabling domestic and foreign investment. “We will ensure that these principles are followed to,” Jaitley said.

It may be noted MAT was first introduced during the 1990s to ensure companies paid a minimum tax — 20 per cent of profits. But the tax department started issuing tax demands to foreign investors late last year, citing a 2012 legal ruling that made foreign funds liable to pay MAT.

While capital gains made by foreign investors as of April 2015 are exempt from MAT, it says tax on past incomes could only be reversed only by the Supreme Court.

Some foreign funds have appealed against the SC ruling. Aberdeen Asset Management of the UK challenged the MAT claim in the Bombay High Court. The finance minister said the government was looking for an early hearing in the Supreme Court of those appeals.

 

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