The final report of the Kelkar task force on direct tax is likely to recommend continuation of the minimum alternate tax and the exemptions provided under Sections 10A and B for software parks and export-oriented units.

The task force under the stewardship of Vijay Kelkar, adviser to the finance minister, has finalised its recommendations to be submitted to Finance Minister Jaswant Singh over the weekend. The final report is expected to be made public by next week.

By opting to pitch for continuing with the minimum alternate tax, the task force has, therefore, plumped for the second option outlined in the consultation paper.

According to that, option, deductions and exemptions under the Income Tax Act will be phased out in three years even as there is an urgent necessity to remove as many of the exemptions as possible from the statute books. The task force is, however, likely to stick to the need to reduce the corporate tax rate to 30 per cent from the existing 36.75 per cent.

It is felt that since not too many companies will be able to claim a zero tax status because of the removal of most of the exemptions, continuing with the minimum alternate tax in the interest of revenue for some time will not create a major distortion.

According to the revenue department, the minimum alternate tax collection accounts for about Rs 2,000 crore (Rs 20 billion) annually. Besides, the task force is also in favour of aligning the depreciation provisions under the Income Tax Act with those under the Companies Act, which would eliminate the possibility of many companies using that cover to claim a zero profit status and, therefore, be eligible for the minimum alternate tax rate of 8 per cent of book profit, instead of paying the higher corporate tax.

It has, however, decided to allow 100 per cent export-oriented units and those located in software parks to claim exemption, which they have been getting under Sections 10A and B of the Act.