Following objections to India’s decision to allow retrospective levy’s of minimum alternate tax (MAT) on previous year’s investment returns this has now been suspended and the government has now clarified that the tax department will neither pursue fresh MAT claims nor act on previous ones until a special government committee has reported on the tax’s applicability to foreign investors.
Objections were amidst long term complaints by multinationals over unpredictable treatment from authorities. The retrospective tax claims were initiated by a previous government and the new government campaigned on promises of cutting red tape for investors and putting an end to what was dubbed as ‘tax terrorism’. Their apparent focus on bringing foreign investment to India had led to beliefs that the 2012 retrospective tax law would be repealed and there is disappointment that this has not been done.
Most Foreign Investment Portfolios have already distributed funds to investors it is unlikely that they will be able to recover funds in order to discharge MAT as these claims are backdated. It is hoped that the findings of the committee will spare investors lengthy litigation in Indian courts as a result of this.
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