Breather for Foreign Investors: MAT Assessments, Fresh Notices Put on Hold

New Delhi: To assuage concerns of foreign portfolio investors (FPIs) slapped with Minimum Alternate Tax or MAT demand, the government on Monday put on hold issuance of fresh notices and any further assessments on levy of this tax on such entities.

The Finance Ministry issued a circular to international taxation wings of the Income Tax Department following constitution of a high-level committee headed by Justice (Retired) A P Shah, Chairman, Law Commission, to look into the issue of levy of MAT on capital gains made by foreign institutional investors or FIIs in past years.

"In the light of Finance Minister's announcement, no coercive action will be taken for recovery of demand already raised by invoking provisions of MAT in the cases for foreign companies," the circular said.

Finance Minister Arun Jaitley had announced constitution of the A P Shah panel in reply to discussions on Finance Bill in the Rajya Sabha last week.

"Issue of fresh notice for reopening of cases as also completion of assessment should also be put on hold unless the case is getting barred by limitation," the Finance Ministry circular said.

While Mr Jaitley did not set any timeframe for the panel to submit its report, the committee is likely to give its recommendations expeditiously, sources said.

Commenting on the move, Ashok Maheshwary & Associates partner Amit Maheshwari said, "This move of CBDT (Central Board of Direct Taxes) was expected and is much welcome in line with the government's recent announcements to allay the fears of FIIs."

"Going forward, it would be really helpful if the CBDT is more pragmatic in their approach and not go for aggressive tax demands which threaten to derail the improving investment climate of the country."

While the government waived off a levy of 20 per cent MAT on capital gains made by FIIs and foreign portfolio investors from this fiscal year, the disputes regarding levy of MAT for past years will be looked into by the Shah panel.

The panel is likely to have three members including tax experts.

Given that cases are pending in courts, sources said the committee's report would give a forward looking direction to the government to resolve the MAT dispute.

The Income Tax Department has already issued notices to 68 FIIs, amounting to Rs 602 crore, for non-payment of MAT at the rate of 20 per cent of capital gains made by them.

The committee would also look into direct tax policies and legacy issues that bring uncertainty in tax administration.