It is a welcome move on the part of the government to clarify the last ambiguities in the applicability of minimum alternate tax (MAT), which continued to rankle foreign companies. Thursday’s notification clarified that even foreign companies like private equity and venture capital firms which do not have permanent establishments in the country will not have to pay MAT. This was the recommendation of the A.P. Shah Committee, appointed by Union finance minister Arun Jaitley following an uproar from foreign institutional and foreign portfolio investors against the retrospective application of MAT. The tax department had sent notices to around 60 entities.
The Shah Committee had recommended that even foreign companies, along with FIIs and FPIs, should not come under the purview of MAT if they had no permanent establishments in India. The government had clarified that foreign institutional and foreign portfolio investors who did not have offices in India would not be taxed with retrospective effect. That left only the foreign companies whose opposition to the tax had to be dealt with. The government will now have to amend the law. For now, the huge damage to the country’s image in the eyes of foreign investors — of having a whimsical, unfriendly tax regime — has been undone. This will also strengthen Prime Minister Narendra Modi’s position as he meets American investors during his current visit to the US.
