Shome Calls for Relook at Base for MAT Levy

India should re-examine the base on which minimum alternate tax (MAT) is imposed on corporates, said Parthasarathi Shome, Advisor to the Finance Minister.

The current system of levy of MAT on ‘book profits’ is not the best method and alternative base such as “networth plus dividend distributed” or “gross profits” should be considered, Shome suggested at Global Tax Summit 2013, organised by the Confederation of Indian Industry (CII) here on Wednesday.

“We have not achieved the best on this (as far as deciding the right base),” Shome said.

Shome’s remarks are significant as the Union Cabinet is expected to in the coming days consider amendments to the Direct Taxes Code Bill.

Although the DTC Bill in the current form provides for levy of MAT on “book profits”, there is still some hope that the suitability of this base will be re-considered when the Cabinet takes a final view on amendments.

Shome pointed out that book profits can always be manipulated and therefore applying an alternative tax on ‘book profits’ would not be the right approach.

In fact, Shome had as part of the advisory committees for the 9th Plan and 10th Plan suggested that the alternate tax be levied on the base of “networth plus dividend distributed” and “gross profits” respectively.


According to Section 115 JA of the Income Tax Act, if a company’s taxable income is less than a certain percentage of the booked profits, then by default, that much of the book profits will be considered as taxable income and tax has to be paid on that.


Shome also said that the recently set up tax administration reforms commission will devise ways for data mining of electronically available taxpayer information.

He felt that the Income Tax Department needed to sharpen the analysis of the information available with it.

The electronically filed information should be used for the benefit of both taxpayers and tax administration, he added.

Shome also said that South Africa – by benchmarking itself with the UK, Australia – was an efficient user of electronic information of taxpayers.

Business Line, New Delhi, 21-11-2013

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