Dabur and Godrej, which have been increasing their focus on rural markets, expect to benefit from higher govt. spend in rural area.

THE finance whizs at India's major corporate groups who make a living minimising the tax paid on profits will have to work even harder thanks to the finance minister's pro­posal to up the outgo on ac­count of the minimum alter­nate tax (MAT) by almost 80 per cent over the past two years.

MAT, which is at present levied on 15 per cent of book profits, will now rise by a fifth to 18 per cent. In the previ­ous budget the finance min­ister had increased MAT from 10 per cent to 15 per cent. The year-on-year hike in MAT outgo will negatively impact the investable resources of companies. "The new level of MAT including surcharge and education cess will come to almost 20 per cent," said Jairaj Purandare, executive direc-tor-in-charge, Pricewater-houseCoopers.

"The hike in taxes for MAT paying companies is of the or­der of 2.9 percentage points while the savings on account of reduction in surcharge is around 0.75 per cent of the income applicable to tax," said Rajeshree Sabnavis, partner, BMR Advisors.

Noted tax practitioner, Nishith M Desai said "More and more companies will have to pay MAT in the future."

"Q3FY10 for Dabur's (ef­fective tax rate-12 per cent) and Colgate's (tax rate - 15 per cent) are less than the re­vised MAT rate implying an increase in its tax liability for future years," said a research report by FII brokerage No­ble Execution.

"The MAT hike will impact cash-flows of companies. Af­ter taking into account the surcharge and education cess, this will translate into an ef­fective rate of 19.93 per cent. It will have higher impact on companies enjoying tax-hol­idays or those which are loss-making entities," said Naveen Aggarwal, executive director at KPMG, told Financial Chronicle. "The reduction of surcharge and increase in MAT balances out & should not have negative impact on the financial markets. The excise duty rollbacks are on the expected lines and should provide the government with additional revenue to finance incremental developmental spending," said Sudip Bandy-opadhyay, group president, Spice Finance. "Although the excise duty rates have been hiked, they still remain at the pre-crisis level and should not be a deterrent in the process of economic recovery," said Kaushal Sampat, chief oper­ating officer, Dun & Brad-street India.

However, Dabur and Go-drej who have been increas­ing their focus on rural mar­kets expect to benefit from the higher government spend in rural areas. "The higher al­location for rural spending, decision to expand the NREGS, increase in subven­tion for timely repayment of crop loan etc would go a long way in putting more money in rural pockets and ensur­ing that rural demand con­tinues to power ahead and will help companies like Dabur improve penetration," said Sunil Duggal, CEO, Dabur India. "Most of our pro­duction is in excise free zones so we will not be impacted much. The increase in in­come tax slabs also puts more money in the hands of con­sumers," said a top official at Godrej Consumer Products.