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Slams direct tax code, calls it an optical illusion
November, 05th 2009

The BJP today flayed the UPA government on the proposed direct tax code (DTC), terming it as deceptive and illusionary and urged the government to not present the code in its present form.

The DTC should not be passed in the present form by the government. We will request the finance minister to rethink (on the provisions of the proposed tax code), senior BJP leader Arun Jaitely told reporters at a seminar on the Direct Tax Code organised by the Confederation of All India Traders here.

He said that the code was the brainchild of former finance minister P Chidambaram and it would hurt the low income group the most as the actual cash outflow for the group would increase if the code was brought into effect in its present form. He said that the code would increase the compliance cost and bring in its net only the salaried class and small-scale traders. Elaborating on the issue, he said the tax slabs in the proposed code in which a tax of 10 per cent is prposed to be levied would be from Rs 1,60,000 to Rs 10,00,000 and most of the people working in the counrty fall under this category.

Further, terming the code as an optical illusion, Jaitley said the senior citizens, who save for their old age, would be the worst affected as their income would be taxed as per EET (Exempt Exempt Tax), which means that while investing their income would not be taxed, but at the time of withdrawal, the income would be subject to taxation. By this, he added, the government proposes to put a burden on senior citizens and pensioners.

Even the activities of charitable organisations would be taxed, which would discourage asset creation by them. The tax code proposes to charge NPOs at 15 per cent. Jaitley said the entire tax code has been prepared without any consultation with the stakeholders and now after getting comments from the stakeholders, the DTC documents have become an albatross around the neck of the finance ministry. The government doesnt know what to do, he said.

Jatley alleged that even the Depatment of Direct Taxes was not kept in the loop while preparing the code.

The Direct Tax Code has been slammed by both industry and tax experts for a few of its provisions such as Minimum Alternative Tax, the taxing of charitable organisations and bringing savings under the EET tax regime among other things.

The industry has been critical of gross asset based valuation for calculating the Minimum Alternative Tax, saying that it is just like wealth tax and will dicourage investments in the country. Also, they have raised issues about the General Anti Avoidance Rules.

Finance minister Pranab Mukherjee has already mentioned seven areas which are being looked into by the finance ministry.

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