In the upcoming Budget, the Centre should come up with a separate roadmap for elimination of the minimum alternate tax (MAT), new FICCI President Harshvardhan Neotia has said.
This should be in addition to the roadmap for reduction of corporate tax rate from 30 per cent to 25 per cent over four years, Neotia told BusinessLine in an interview in New Delhi.
Finance Minister Arun Jaitley had, a few months ago, announced in Parliament the Centre’s intent to scale down corporate tax rate from 30 per cent to 25 per cent over four years.
Neotia, who recently assumed charge as President of Federation of Indian Chambers of Commerce and Industry (FICCI), said: “Our view is, please reduce MAT in line with the approach decided for doing away with exemptions. As you remove exemptions, you start moderating MAT rates. MAT should be eliminated once you eliminate the exemptions,” he said.
MAT, which was reintroduced in 1996 at a rate of 7.5 per cent, is considered a major irritant by industry. The rate has since gone up to 18.5 per cent, close to the effective tax rate of 22 per cent for corporates.
For the government, MAT had become a revenue-raising avenue, despite industry’s demand for scrapping it. Over the past two decades, this levy has moved from ‘book profits’ to ‘taxable income’, which means it is now applicable on taxable income.
On corporate tax rate reduction, Neotia said care should be taken to ensure that exemptions and rate reductions happen in a coordinated manner. “It should not be that the exemptions go first and rates don’t come down. Over a four-year period you match both. As you bring down the rates, you bring down the exemptions,” he said.
Indirect tax rates Neotia felt it would be better if the Centre refrained from hiking indirect tax rates in the Budget even if it was being done in preparation for the Goods and Services Tax (GST) introduction.
“It is better to go straight to GST. We have not come across such a proposal of government looking to hike excise rates in preparation for GST. We don’t think GST is very far away,” he said.
Reforms push On the Centre’s performance in pushing reforms, Neotia said the government had in the last one and half years undertaken many reform initiatives. “I see some early signs of success of some of their endeavours come through, andm going forward, I look to growth picking up to 8 per cent by end March 2017,” he added.
“Public investments have started hitting the ground in the last six months, triggering a positive cycle of investment and money going to contractors. I see all of this impacting economic growth in a positive manner,” he said.
On whether the Centre should move away from the fiscal deficit goals to prop up growth, Neotia said he does not have a “fixed view” on the matter. “If you need to recalibrate scaling down of fiscal deficit by a year or so, so be it. Hopefully it would not cause other disruptions,” he said.