Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: VAT Audit :: form 3cd :: due date for vat payment :: ACCOUNTING STANDARDS :: empanelment :: TAX RATES - GOODS TAXABLE @ 4% :: Central Excise rule to resale the machines to a new company :: ACCOUNTING STANDARD :: VAT RATES :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: cpt :: ARTICLES ON INPUT TAX CREDIT IN VAT :: list of goods taxed at 4% :: articles on VAT and GST in India :: TDS
 
 
Direct Tax »
 No change in gold seizure norms in proposed I-T Law amendments
 Direct tax collection will get a long-term boost, Franklin Templeton says
 I-T Act amendments upset calculations of cash hoarders
 Claim tax benefit on costs incurred to evict tenants
 The Integrated Goods And Services Tax Act, 2016
 Here’s what Income Tax Department did leading up to demonetisation
 I-T department asks IDS declarants to pay tax by November 30
 Cash trove tax drive dilemma
  CBDT halves Income Tax refunds issue timeline to 15 days for this fiscal
 CBDT signs four unilateral advance pricing agreements
 Central Board of Direct Taxes allowed Rs 4,500 crore of irregular benefits to infrastructure companies: CAG

India still needs the Direct Tax Code
November, 02nd 2015

In his budget speech in February, finance minister Arun Jaitley in effect said that the Direct Tax Code (DTC) was being buried. The appointment last week of a new committee to rewrite Indian income tax law should be seen against this backdrop. Jaitley had explained that most of the provisions of the proposed code have already been integrated into existing tax law. Jurisprudence under the Income Tax Act is also well developed—even though there is a massive pile of money stuck in litigation. The finance minister concluded there was no merit in going ahead with the DTC.

The die seems to have been cast. It may seem like a losing battle, but this newspaper still feels that the DTC in its original form should be brought back on the table. After all, as we thankfully saw in the case of Aadhaar, government decisions can be changed. The Narendra Modi government almost scrapped Aadhaar before it saw the light. Now the biometric identification programme is one leg of its social inclusion policy, when teamed up with mobile payments and the Jan-Dhan Yojana.

It would be far better if the government even now decides to go ahead with the original version of the DTC as the best way to reform the Indian tax structure, even though it is five years since the original bill was tabled in Parliament by the previous government. The radical promise of its original version had already been watered down in the subsequent political bargaining.

The original DTC is elegant in its design. Its main strength is a simpler tax code that does away with discretionary exemptions on the one hand while creating space for lower tax rates on the other hand. Jaitley has recently reiterated his decision to bring down the corporate tax rate to 25% in the coming years. That would still keep Indian corporate tax rates several percentage points above the median for the countries in the Organization for Economic Cooperation and Development or OECD (a gap that, among other things, acts as a perverse incentive for tax arbitrage through transfer pricing). A deeper tax cut needs the DTC.

Of course, it is quite reasonable for the revenue collectors in the government to worry about whether lower rates will further constrict the flow of money into the treasury. The DTC will actually help increase the tax base to deal with the problem of potential revenue loss. It is thus very important that the entire DTC architecture is accepted. As in the case with the goods and services tax (GST), a diluted version of the DTC undercuts its potential to transform the Indian economy. Some corner solutions matter.

Why does the DTC still deserve another chance? The economist will say that a clean tax code results in more efficient capital allocation in a growing economy. The tax consultant will know that it can dramatically reduce tax terrorism by undermining the discretionary powers of the tax department. The personal finance expert will argue that it can minimize the distortions in savings behaviour as well as reduce the incentives for mis-selling of financial products. It is also worth pointing out that a complicated tax structure in effect helps large business groups who can game the system with the help of a battery of in-house tax experts.

India should by now have put into place a new tax structure via the DTC and the GST. Our ratio of tax to gross domestic product is one of the lowest among emerging market peers. The small tax base reduces the ability of the Indian government to build physical as well as social infrastructure. The messy tax structure we have also has malign indirect effects, since it distorts the decisions of companies, investors and households. Think about the fragmented nature of production chains in India because of a surfeit of state taxes or the obsessive shopping for tax breaks that have led to so many wrong investment decisions by households.

The tax structure needs radical change rather than meddling at the corners. And that is why the original DTC should not be given up as a lost cause.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
SEO Company Search Engine Optimization Company US SEO Local SEO Company Website SEO Company Alabama SEO Company Alaska SEO Company Arizona SEO Company Arkansas SEO Company California SEO Company Colorado SEO Company Connecticut SEO Company Delawa

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions