Minimum Alternate Tax (MAT) has been levied on developers of Special Economic Zones (SEZs) and units operating in SEZs with effect from 1st April, 2012 vide Finance Act, 2011. Representations have been received from the business community and others regarding restoration of exemption from payment of MAT to SEZ units and developers.

The Ministry of Commerce amended the Income-tax Act through Special Economic Zones Act, 2005. Sub-section (6) as inserted by SEZ Act, 2005 n section 115JB of the Income-tax Act provided that MAT shall not apply to the income accruing or arising on or after 01.04.2005 from any business carried on or services rendered by an entrepreneur or a developer, in a unit or a Special Economic Zone. There was no sunset date for this exemption. MAT is levied on the principle that everyone participating in the economy must contribute to the exchequer.

It was noticed that the companies were making huge profits and distributing dividend to their shareholders but were not paying any income tax due to the large number of exemptions/deductions available under the Income-tax Act. Accordingly, MAT was levied on all companies to address inequity in taxation of corporate taxpayers. The removal of MAT from SEZ developers and units had no justification vis-à-vis other sectors of economy which were liable to pay MAT. Further, MAT paid by the company can be carried forward for set-off against regular tax payable during the subsequent year(s), upto ten assessment years when the regular tax payable under the normal provisions of the Income-tax Act is more than the computation provided under MAT.

This information was given by the Union Minister of Finance, Shri Arun Jaitley in written reply to a question in Lok Sabha today.

Minimum Alternate Tax on SEZs applied to align tax contribution and permit MAT credit carryforward against future regular tax. MAT was extended to SEZ developers and units from 1 April 2012, reversing an exemption previously created by the SEZ Act, 2005 which excluded SEZ income from MAT. The policy rationale was tax equity-ensuring corporate participants contribute despite exemptions-and MAT paid may be carried forward as credit to set off against future regular tax under the Income tax rules.