The revenue department is pushing for increasing the minimum alternate tax (MAT) from 7.5 per cent of book profits to 10 per cent.
This can result in an additional revenue of over Rs 1,000 crore a year to the government.
The issue has repeatedly figured in the revenue department, but considering the sensitive nature of the proposal, has not found a place in the Finance Bill.
It was referred to the directorate of research within the ministry after the Budget this year. The directorate, too, has underscored the need for raising the rates.
At present, while the corporate tax rate is 36.5 per cent, including surcharge, several large companies claim zero tax liability by taking advantage of various tax incentives and exemptions.
As per the MAT provisions, Section 115J of the Income Tax Act provides for payment of a presumptive tax of 7.5 per cent of book profit, by such companies.
For the current fiscal, the revenue realisation from corporate tax is estimated at Rs 48,616 crore, of which MAT is expected to contribute Rs 4,200 crore.
The proposal makes a lot of sense for the government. This is because it has little leeway to raise either income tax or corporate tax.
In income tax too, there is pressure to raise the minimum threshold on annual taxable income. The Centre has, however, left untouched a few tax areas it can tap to reverse the sliding tax-GDP ratio.
In the current fiscal, the revenue collection is estimated to be over 30 per cent more than in 2001-02.
Direct tax collection, however, is chugging along, with a 21 per cent growth. Of this, corporate tax has done better so far at almost 33 per cent till the end of September.
While industry chambers have argued that deletion of the MAT provision will encourage an industrial revival, the Centre feels that without removing the large number of tax concessions, there is no justification for removing MAT from the statute books.
In a presentation to the Kelkar committee, the revenue department has taken the same line.
The ministry
