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Government Accepts Shah Panel Report on Tax Waiver in Big Relief for Foreign Investors

Markets are expected to cheer the government's move on MAT.
Markets are expected to cheer the government's move on MAT.

In a move to placate foreign investors, the government has accepted a report on minimum alternate tax or MAT which recommends a waiver of tax on capital gains of earlier years.

"Today I have accepted the report of the AP Shah Panel," Mr Jaitley said on Tuesday evening, explaining that the report suggests that no retrospective tax be levied on foreign investors.

Mr Jaitley said he would make the change permanent through legislation in the next Parliament session.

The markets - which slumped today on a fresh bout of weakness across the globe and because of disappointment with weak economic data - are expected to cheer today's move.

Global banks and investors had challenged the legitimacy of MAT, which was intended to ensure companies inside India paid a minimum tax rate to foreign investors' gains.

The government had earlier conceded that MAT would not apply to such gains from April 2015, but had said the exemption did not apply retroactively, upsetting investors in the US and Europe. The announcement had spooked the markets and the sell-off in shares continued for over three weeks leading to over 5 per cent decline in the broader indices.

In May, the government set up a panel headed by Justice AP Shah to suggest ways to resolve the MAT dispute as well as some other tax issues. The retired judge had met the Finance Minister recently and recommended that back-tax claims be cancelled. Mr Jaitley said the Shah committee submitted the final draft of its report on August 25.

India first introduced MAT during the 1990s to ensure companies paid a minimum amount of tax, normally 20 per cent of profits.

Tax authorities began issuing MAT notices to foreign portfolio investors late last year and have so far sent claims for just Rs 600 crore but investors feared the final bill could run to billions of dollars.

Some foreign funds have appealed against the ruling in the Supreme Court. UK-based Aberdeen Asset Management has challenged the MAT claim in the Bombay High Court.