The income tax department has been asked to delay new demand notices on foreign institutional investors (FIIs) for payment of the controversial minimum alternate tax (MAT) or any coercive action for realising tax claims in view of the constitution of a committee headed by Justice AP Shah to look into the issue.
The Central Board of Direct Taxes has instructed officials dealing with international taxes not to take any coercive action against FIIs for recovery of demands already raised by invoking provisions of MAT, finance minister Arun Jaitley stated today.
While responding to the discussions on the Finance Bill in the Rajya Sabha on 7 May 2015, Jaitley had announced the constitution of a committee headed by Justice AP Shah to look into, inter alia, the issue of minimum alternate tax (MAT) on FIIs. The committee is expected to submit its report on this issue soon.
In the light of the finance minister's announcement, officers dealing with international taxes have been advised that no coercive action be taken for recovery of demand already raised by invoking provisions of MAT in the case of foreign companies particularly FIIs. Issue of fresh notices for reopening of cases as also completion of assessment should also be put on hold unless the case is getting barred by limitation, CBDT stated.
The CBDT statement comes after the imposition of retrospective MAT tax claims totalling Rs602 crore sparked an outcry among foreign companies and investors.
The move to pacify investors, which is seen as a big u-turn by the government, comes after continued sell-off in the financial markets by FIIs since April on the apprehension that the government will impose a 20 per cent MAT on profits earned by them.
Overseas investors are said to have reduced their exposure to Indian markets, pulling out over Rs12,000 crore from it so far this month, fuelling concern that MAT would drive them away just as many are poised to pour money into India on Prime Minister Narendra Modi's promise of a more business-friendly environment.
In recent weeks, many foreign investors have received notices requesting their MAT calculations for the financial year 2011-2012, with the tax office saying it would apply the tax to previous years. The tax department has so far issued notices to 68 FIIs.
Western investor groups have sought clarification on India's tax regime for foreigners, with tax experts saying that international funds and banks could face a bill of as much as Rs51,000 crore ($8 billion).
Some foreign investors have even gone to extend of challenging MAT and at least one, UK-based Aberdeen Asset Management, has won a stay on the procedures.