The Union government expects to collect Rs 5,60,000 crore as direct tax revenue in 2011-12, the first year when the new direct taxes code would be fully implemented, said Arbind Modi, joint secretary in the revenue department.

During the current financial year, direct tax collections are budgeted at Rs 3,70,000 crore, while the Centres total tax revenues are projected at Rs 6,41,079 crore.

While the government has proposed to do away with a host of exemptions, the draft code, put out for public comments, has proposed to lower the rates for corporation and personal income tax. In the latter, the slabs are also proposed to be reworked.

During an interactive session organised by Bombay Chamber of Commerce, industry representatives said the proposal to levy a minimum alternate tax (MAT) of two per cent of gross assets was unfair. They also voiced concern over the General Anti Avoidance Rule (GAAR) and overriding of tax treaties with 72 companies proposed in the code.

MAT is the most obnoxious part of the whole code, said F N Subedar, senior vice-president, finance, at Tata Sons, the holding company of Tata Group. By an estimate he gave on a sample base of 10,176 companies, if the code was already applicable, industry would have paid an average tax of Rs 1,31,114 crore in the five-year period starting from 2003-04, against about Rs 75,173 crore that was actually paid.

This period was considered the growth phase for Indian industry. Subedar especially pointed out the plight of non-banking finance companies, which work on low margins.

The government, in the code draft, has proposed to bring down the corporate tax rate to 25 per cent from the currently effective 34 per cent.

However, it has proposed to put two per cent of MAT on the gross assets of those companies whose corporate tax outgo is lesser than MAT. This would make even loss-making companies pay tax. Besides, there would be not be a set-off against MAT in the future years.

However, the government defended the proposal and said of the 450,000 companies filing a tax return, only 50,000 were paying taxes. These companies are recording losses year after year, so we have to find a mechanism to avoid evasion, said Modi, a key offcial involved in drafting the direct tax code.

The idea is to tax according to the ability to pay and gross assets can be taken as the ability, he said.

He also pointed to Mexico, where this move was taken to overcome a fiscal crisis and later withdrawn.