India’s FM on the MAT

Personally, I applaud this Op.-Ed. Some will claim that he is deflecting the blame on tax administration. That he is not taking responsibility. Well, he is. He is promising to fix it. Yes, he had been wrongly briefed and he should have asked more questions.

If the rulings of the AAR have been challenged in Courts (mind you,Castleton Investments is not a FII), then the government (Income-Tax Department) should have waited for the court rulings to come, study them, decide on the appropriate course of action and send notices, if that presented itself as the most logical and the correct thing to do. All that should have been done after the Court verdict. AARs have given conflicting verdicts. Clearly, MAT does not apply to those who do not have a permanent business establishment in the country. In fact, even if the highest Court upholds the verdict of the AAR in the Castleton, it would have to be seen if that was applicable in the case of FIIs. So, the task before the Highest Court of the land is critical. It has to decide if MAT applied to transactions undertaken by foreign entities and FIIs separately.

So, a lot still remained unclear. So, sending the notices was not the right thing to do. The FM could and should have asked all these questions beforehand. But, that is now water under the bridge. Damage has been allowed to be done. So, now it is about damage limitation.

This Op.-Ed. is to be seen in that light and, as a damage limitation exercise, this Op.-Ed is well written and well done. Well drafted. Not too long. To the point and promises action, combined with some mea culpa and some sensitivity. Good show!

Coincidentally, this Op.-Ed. by India’s FM has appeared about half a day after the Vodafone Chief Executive complained of taxes and red tape in India. Five days ago, a news-report in India’s Business Standard called the FM Pranab Mukherjee 2.0. That must have hurt. The current Indian President did a lot of damage to India’s fisc. and reputation with his budgets from 2009 to 2012.

Some of the points made in this blog post are based on Arvind Datar’s column in Indian Express and this Edit in Financial Express.

A nice crisp Op.Ed in Wall Street Journal. One has to agree. The FM has undone a lot of good work of the PM’s foreign visits with this MAT demand on FIIs.


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