The finance ministry has reported that India has decided to waive imposition of a minimum alternative tax on foreign companies, as it tries to address lingering tax concerns that have made investors circumspect in committing fresh funds. The central government will amend the income tax law with retrospective effect to exempt foreign companies, covered under double taxation avoidance agreements from MAT, the ministry said.
The amendment which has been in effect from April 1, 2001, will also provide the relief to foreign firms that are not registered or do not have a permanent establishment in the country. The decision comes weeks after Finance Minister Arun Jaitley accepted the recommendations of a government panel for giving the tax waiver to foreign portfolio investors. “Effectively, now all foreign companies have been exempted from MAT,” said Rajesh Gandhi, a partner in Deloitte Haskins & Sells LLP. “It is a major relief as earlier there was no clarity whether foreign firms are liable to pay the tax.”
India first introduced MAT in the 1990s to ensure companies paid a minimum amount of tax, normally around 20 per cent of profits. However, it had never been imposed on foreign investors until last year when tax officials, citing a court ruling, started sending notices to foreign funds, including Aberdeen Asset Management.
