Finance minister Pranab Mukherjee on Wednesday said the government would soon come out with the new draft of the direct taxes code (DTC) after incorporating changes based on feedback from corporates and individuals on the earlier draft.
The finance minister told members of the Confederation of Indian Industry (CII) that this would be the "semi-final draft" since he would still be open to suggestions from them before he presents the final draft to Parliament for approval.
Central Board of Direct Taxes (CBDT) chairman S. S. N. Moorthy, too, said on Wednesday the draft would come out for public debate in next two months.
The new DTC aims at radical reforms of direct taxes and simplification of the tax structure. Once approved, it will replace the Income Tax (I-T) Act of 1961 and other related laws. It is slated to be introduced in April 2011.
However, the finance minister said the new direct taxes code covering corporate and income tax norms would have to be tabled in Parliament at the earliest to allow sufficient time for discussions before it comes into force in the next financial year. There have been serious misgivings among corporates over the clauses of the earlier draft as it had proposed to tax companies on the basis of gross assets instead of profits.
This would have put companies in the power and infrastructure sector in serious trouble as they would not be earning any profits over a long period while they were being set up but would have to pay taxes on gross assets, which have been created through bank loans.
The earlier draft had also proposed to tax long-term savings, such as provident funds and pension funds at the time of withdrawal, which would cause hardship to people on retirement.
Mukherjee said the goods and services tax (GST), which the country plans to introduce to replace the Central excise and levies by state governments, was also on track and he was sorting out the problems with the state finance ministers.
He said the Central government would compensate the state governments for any loss in revenue in switching to the new system.
The finance minister said the finance commission had already provided for setting aside Rs 50,000 crore to meet any shortfall in revenue of the states.
"Money for compensating the states would not be a problem," he added.
He said the GST would be a win- win option for both the Centre and the states.
Meanwhile, CBDT chairman Moorthy said India's direct tax collection for 2008-09 is unlikely to meet the revised target of Rs 3.87 lakh crore.
"The final figure will be available soon after compilation of all the transactions. As of today, it is around Rs 3.78 lakh crore. The total tax collection may be around Rs 3.8 lakh crore," Moorthy said at a seminar on Tax Deduction at Source (TDS) organised by the industry body, The Associated Chambers of Commerce and Industry of India (Assocham).
According to the provisional data available with the government, the actual collection of direct taxes is Rs 3.75 lakh crore. The government had earlier revised and increased the target for direct tax collection by Rs 7,000 crore to Rs 3.78 lakh crore.
Moorthy elaborated that the TDS component in direct tax collection was encouraging.
"It contributed about 40 per cent of the total direct tax collection, generating a revenue of Rs 1.53 lakh crore in the last fiscal," he added.
The finance minister also expressed concern over the impact of high food inflation on the common man, but exuded confidence that the government would beat the surging prices in the next few months.
He said since some states do not have effective delivery mechanism, the proper impact of the Centrally initiated measures to contain inflation did not have the desired results in these states. Therefore, the finance minister said, there is an urgent need to revamp the public distribution system (PDS), possibly with the help of smart cards, to ensure that the poor are not affected by the rising food prices.