Govt not to forgo Rs40,000-cr MAT claim on FIIs: Jaitley

The government will press ahead with Rs40,000 crore tax demand on foreign institutional investors after the FIIs lost a case against levy of tax on capital gains they made by trading in the stock market in India, finance minister Arun Jaitley has said.

The Rs40,000 crore tax demand pertains to the period till 1 April 2015, after which the government had abolished the minimum alternate tax (MAT) and the tax dues till then the FIIs have to pay up unless the government allows a waiver. (See:  Foreign funds told to pay up $6 billion in MAT dues)

These investors who made a huge fortune in the stock markets now want the government to retrospectively abolish the tax on capital gains - an antithesis to the retrospective tax regime that they all opposed and which the government had agreed to keep in abeyance.

In an interview to NDTV, Jaitley said the BJP government has abolished MAT from 1 April 2015, but the tax demands pertain to an earlier period and they wanted it waived retrospectively.

"FIIs went to a tribunal, which is called Authority for Advance Rulings (against levy of 20 per cent Minimum Alternate Tax on capital gains). They got a judgement against themselves.

"So, the tribunal has decided against them. The amount involved is Rs40,000 crore. I can change the face of India's irrigation with that Rs40,000 crore," Jaitley said.

Jaitley said the government is open to all reasonable demands, but this country has no plans to become a tax haven!

"We are reasonable, so for the future I have waived it. But the tax demand after winning the case, if I waive off, we will be like a tax haven would I be answerable to Parliament that after the case I just waive Rs40,000 crore," he said.

On a question on the multi-billion dollar tax demands on Cairn Energy Plc of UK and Cairn India, Jaitley said the tax assessment orders were passed in January 2014 and demands were follow-up notices.

"Since they are entitled to challenge in court, we will see what the courts decide," he said.

Jaitley said in the last one year no retrospective tax law has been brought and "not a single new notice has been issued. My only problem is with regards to legacy issues that I inherited from the previous government".

Foreign funds investing in secondary markets in India have so far paid 15 per cent on their short-term gains on investments in listed equity and 5 per cent on gains from bonds, but have not paid anything on their long-term gains.

The tax authorities have been sending notices to these funds since late last year, asking them to pay MAT of around 5 per cent.

A five per cent MAT added to 15 per cent tax on the short-term gains potentially brings overall tax on market gains of these funds to 20 per cent.

There are an estimated 8,000 registered FPIs in the country on whom the stock markets have been dependent.

These funds have made an overall net investment of $226 billion (over Rs11,00,000 crore) in Indian markets and these funds are now propelling the market now.

The number of defaulting funds may rise substantially as assessments are still in progress, and with more notices being served on many more cases, the overall tax demand may well cross $10 billion, sources say.