MAT crisis comes at a sensitive time for markets: Nirmal Jain
ET Now: There is a clarification on certain exemptions that are about REITS, but there is no clarification on the retrospective claims in MAT. Will the markets be disappointed on Monday?
Nirmal Jain: The government says that this matter is old and this relates to the tax provisions before they took charge. I do not think they have any locus in that to withdraw these notices because they have been done by CBDT, which in a way works independently.
Investors are worried because India has a tendency to rake up issues after a long while. What is the need to send notices after three years? If you had a problem you could have given clarification in that year itself. As far as FIIs are concerned, they will have great difficulty. Most of the FIIs also have a construct of mutual funds because they have funds that operate and they may raise money for investing in emerging markets or in countries like India.
Many of the earlier investors might have withdrawn on NAV, some of the closed-ended funds might have been liquidated or might have wound up completely. So, it becomes very difficult to enforce this. It is unfortunate that this happened at a time which has been very crucial and sensitive for FII flows to continue and for markets to sustain because there was consensus in the last few months that there is a bull market and on the back of FII piggybacking, many retail investors, individual investors would have come a little later in the market. Now they are going to burn their fingers, at least those who are leveraged or those who cannot hold for a longer while.
This does not solve the problem, but as far as the problem is concerned and the way government has taken a stand, it does not have an easy solution. If the High Court gives some relief, then we have to see whether the government or CBDT under government wants to leave it there or take it up in the Supreme Court because if they leave it there, there is some relief from the High Court that it will be positively okay.
ET Now: Does that mean that you do not see any silver lining in any of these clarifications because in the government's defence, they have come out and tried to project that they want to maintain this stable tax regime?
Nirmal Jain: The government's stand is very clear and unequivocal that whatever law they are making prospectively, they will try to make sure that it does not have any ambiguity or controversy. From that perspective, they have clarified few more things like debt or private equity, which is positive but market was spooked and FIIs have been little concerned for a different region, not for the prospective issues, but the notices are coming for historical tax liability. To that extent, this does not address the main problem. But of course this is positive, a minor positive, I would say.
ET Now: What is that minor positive?
Nirmal Jain: Minor positive is that there is a clarification for debt as well as private equity that MAT will not be applicable to them.
ET Now: Will this clarification move the markets on Monday?
Nirmal Jain: It is unlikely. But the markets, as you know, will be governed by several other factors, including how emerging market sentiment is, how global markets are, but the negative sentiment in the market about MAT is not getting resolved by this.
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Source: The Economic Times
