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Rediff.com  » Business » Govt abolishes FBT; raises MAT to 15%

Govt abolishes FBT; raises MAT to 15%

July 06, 2009 18:22 IST
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The government on Monday raised the Minimum Alternate Tax (MAT) to 15 per cent even as it abolished the Fringe Benefit Tax (FBT) and Commodities Transaction Tax (CTT).

The government did not change the corporate tax rates.

Unveiling the Budget for 2009-10, Finance Minister Pranab Mukherjee said, "MAT was introduced to address inequity in taxation of corporate taxpayers. In the quest for greater equity, I propose to increase the rate of MAT to 15 per cent of book profit from the present rate of 10 per cent."

MAT is the amount companies pay as tax on their book profits.

However, the minister granted some relief to companies, allowing them to adjust their tax liability under MAT from 7 years to 10 years.

Announcing the decision of the government to do away with the FBT, he said, "this tax has been perceived as imposing considerable compliance burden. Empathising with these sentiments, I propose to abolish the fringe benefit tax."

FBT was imposed by the then Finance Minister P Chidambaram in 2005 on the value of certain fringe benefits provided by employers to their employees.

To help the exporters reeling under the economic slowdown, the Minister extended the sunset clauses for deduction in respect of export profits under sections 10A and 10B of the income tax Act by one more year, till 2011.

Pointing out that tax exemptions are inherently inefficient and liable to misuse, the minister proposed to incentivise businesses by providing investment-linked tax exemptions in preference to profit-linked exemptions.

"To begin with, I proposed to extend investment-linked tax incentives to businesses of setting-up and operating cold chain, warehousing facilities for storing agricultural produce and business of laying and operating cross-country natural gas or crude or petroleum oil pipeline network," he said.

 Under the incentive-linked tax exemption scheme, all capital expenditure, other than on land, goodwill and financial instruments will be allowed as deductions.

On reforming the system of political funding, the minister proposed that donations to electoral trusts shall be allowed as 100 per cent deduction while computing the income of the donor.

"With a view to reforming the system of funding political parties, I propose to provide that donations to electoral trusts shall be allowed as a 100 per cent deduction in the computation of the income of the donor," Mukherjee said.

To incentivise research and development work by the corporate sector, the minister proposed to provide a 150 per cent weighted deduction on the expenses on in-house R&D.

The benefit will be provided to all manufacturing businesses, except a small negative list.

With regard to deductions on interest on loans taken for higher education, Mukherjee extended this benefit to all fields of study, including vocational studies.

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