Mundra Port and Special Economic Zone Ltd’s (MPSEZ) stock has declined by 8% to Rs136 apiece since finance minister Pranab Mukherjee proposed to levy a minimum alternate tax (MAT) on developers of SEZs and units operating there on Monday. During the same period, the Sensex has gone up by 4.5%.

At present, income earned by SEZ developers or units operating in SEZs is not included in the computation of “book profit" for MAT calculations. That’s precisely why MPSEZ’s stock has reacted in that fashion in the past few days.

Including the surcharge and education cess, MPSEZ would be required to pay MAT at the rate of around 20%. The firm maintains that its earnings per share would not be hit because of the new proposal. This is because it intends to avail of MAT credit entitlement, which will reflect in the balance sheet rather than the profit and loss account.

According to income-tax (I-T) rules, firms can carry forward MAT credit for the next 10 fiscal years. “In accounting terminology, MAT credit entitlement can be used to offset MAT expenditure. As a result, the new provision would not alter the effective tax rate for MPSEZ (around 8-10%)," Achal Lohade from JM Financial Institutional Securities Pvt. Ltd wrote in a note to clients.

Having said that, this would lead to a cash outflow for the company in the near future. The JM Financial note points out that MAT would be recouped after FY17. That’s when MPSEZ’s I-T exemption benefit will end.

Meanwhile, in December, the ministry of environment and forests (MoEF) issued a show-cause notice to the firm for violation of coastal regulation zone notifications. In response to that, MPSEZ has issued a clarification and is awaiting MoEF’s response.

“In our view, current operations at the port are unlikely to be affected as the issues raised by MoEF pertain to an area which is located at a distance from the west port (where the coal terminal is located)," wrote analysts from Religare Capital Markets Ltd in a note to clients last month.

Needless to say, if MoEF’s final verdict is unfavourable, then it would not bode well for MPSEZ. However, the company’s share price seems to be factoring in most of the negatives at the current levels.

We welcome your comments at