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Indian Industry Lobby Wants Reintroduction Of Investment Allowances

by Lorys Charalambous, Tax-News.com, Cyprus

27 December 2001


In advance of the Indian budget, the Federation of Indian Chambers of Commerce and Industry on Sunday demanded withdrawal of the Minimum Alternative Tax (MAT) and the reintroduction of investment allowances.

The FICCI suggested that the concept of the MAT per se should be done away with as it has proved to be counter productive and a disincentive to the promotion and growth of industrial activity. This would not be the first time that a mechanism imposing minimum taxation levels has been put onto the statute book, only to be withdrawn after unfavourable experience. Provisions similar to MAT were brought on the statute book in earlier years, but had to be withdrawn owing to undue hardship and retardation of economic growth besides operational problems, FICCI said in a statement.

In the US, the MAT paid in a particular year can be adjusted restrospectively in the light of the taxes payable on normal taxable profits in later periods, the FICCI said, adding that a tax credit facility should, therefore, be restored in the Indian context as well.

"A glaring fallout of the MAT provisions is the denial of full tax holiday benefit to corporatised small industries and corporatised units in the industrially backward areas. The re-introduction of MAT for such units has created hardships for them," added the FICCI.

The Federation also considers that profits derived by an industrial undertaking from the generation/distribution of electricity should be excluded from the computation of book profit as defined under section 115 JB of the Income Tax Act.

FICCI says that private capital formation is being depressed by the absence of tax rebates or investment allowances, and presses for their reintroduction.


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