The Hindu : Business : Not many changes in corporate taxation

Online edition of India's National Newspaper
Monday, Aug 09, 2004

Business

Business

Not many changes in corporate taxation

QUESTION: What are the changes in the budget which would affect the corporate sector?

ANSWER: The corporate sector had reason to expect the abolition of MAT or at least restoration of tax credit. This has not happened.

What is more, the income of a infrastructure capital fund, infrastructure capital companies and co-operative banks, which were financing infrastructure or housing, hospital, or hotel projects which were thus far exempt under Sec. 10(23G) will now become liable for MAT, if the Bill becomes law. Truth is sometimes stranger than fiction, but the reason advanced on Memorandum as to why these amendments under sections 10(23G) and 115JB are proposed is "with a view to rationalise the provisions" covered by "Rationalisation and Simplification Measures". How the provisions get rationalised by imposing the liability for infrastructure capital funds and companies is not made clear, especially when these companies and co-operative banks alone are chosen for diluting the exemption under Sec. 10, when there are various other incomes which continue to be exempt.

Benefits as available for others: The corporate sector will enjoy with others the benefit of new tax incentives available for some industries by extension of relief under Sec. 80-IA for power and telecommunication industry, and extension of dates for commencement of new industrial undertakings under Sec. 80IB, relaxation for concession for property developers under Sec. 80IB(10), extension of concession for industries located in Jammu and Kashmir and introduction of concession for agri-processing industries and rural hospital with 100 beds.

The benefit of exemption for capital gains on listed shares and reduction in tax for short term capital gains will benefit companies having capital gains, besides by serving as incentive for capital market. It is, however feared, that the concession will be offset to a large extent because of the transaction tax, though small at 0.15 per cent.

Tax on distributed dividend: Enhancement of tax on distributed dividend by Unit Trust of India and mutual funds from 12.5 per cent to 20 per cent would affect companies, which are parking their surplus funds in these institutions. This amendment is also listed as one of the measures covered under the head "Rationalisation and Simplification". There is neither rationalisation nor simplification in this measure.

There is no indication of the purpose of this amendment. But it is probably intended to discourage companies and persons other than individuals and Hindu Undivided Families parking their surplus funds temporarily in Mutual Funds by imposing a higher additional tax on such mutual funds. If that be the objective, it will not serve the purpose, since the incidence of the tax will fall on the other investors in the Mutual Funds and not on the companies themselves.

(To be continued)

S. Rajaratnam

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