The Direct Tax Code (DTC) bill was tabled in Parliament on August 30, 2010. Made up of more than 400 pages, what are its key highlights? The corporate tax rate has been proposed at 30%, profit linked exemptions for special economic zones (SEZs) and the long-term capital gains exemption on listed equities stays along with Securities transaction tax (STT), short-term capital gains will be taxed at half your slab rate that is 5-10-15%, depending on which slab you fall under.

As far as individual taxation goes, the exemption limit has been hiked to Rs 2 lakh and a wealth tax of 1% on assets more than Rs 1 crore will be levied. Now the new DTC is expected to be applicable from April 1, 2012.

So at the end of what seems to be a three-year very long exercise, what kind of new law are we faced with? Media had an in-depth conversation with Deputy CEO & Chairman-Tax at KPMG, Dinesh Kanabar, who sees the new bill as a simplistic version of the existing income tax act which should not have been the case.

Here is the verbatim transcript of his interview.

Q: A quick impact analysis. Any materially different impact on both companies as well as individuals, as compared to where we are today, under the existing income tax act, it doesnt seem to me like life will change much, will it?

A: I dont think there is a dramatic change in the corporate sector. We have certain things like foreign companies being regarded as resident in India, if their place of effective management is in India. We have this whole change on overseas transfers with an underlying value in India, which again is a sea change.

There is an introduction of controlled foreign company regulations and finally we have the general anti-avoidance regulations (GAAR) which I would say are the four-five big changes in the way we are approached taxes hitherto for. But certainly a sea change from where the position was in terms of the first draft.

What was there in the second discussion draft and what has finally emerged as the position with the government is taking in terms of presenting the bill. A very shifting of stance. At one level you could come back and say have the lobbying groups got their pound of flesh? The other way you can come back and say is the government listening to people and doing things?

I will again give you a perspective. Probably about four-five years back, the government embarked on a mission to say can we rewrite and simplify the law. A committee was set up to review the tax laws.

That was given a go and then a whole new law was sought to be enacted with minimum alternate tax (MAT) on gross assets etc and we now seem to have come back at the original position. Just simplify the law, keep it as it is, dont change the overall framework, do away with all the exemptions, do away with all the explanations etc and have a law which people can simply understand.

Q: We have just ended up with a simpler version of the existing income tax act after two years of heated debate on a new direct tax code?

A: I would agree with that but simplification itself is not a very good objective to have.

Q: But it didnt require two years of debate then.

A: I agree with you, but the two years of debate, came from a position, where the government moved from just one objective of simplification to a lowering of a tax base. The position was can we get a tax rate lower to 25%. If you wanted to get the tax rate lowered down to 25%, then you have to do something else to balance and raise resources and you wanted to then have assets based MAT taxation etc. When you removed that objective, everything changed. It was shifting of the governments objective and focus in the interregnum which led to these whole changes.

Q: You pointed out all the efforts made by the tax department and the finance ministry to usher in a whole new regime of taxation where you have lowered the tax ability on individuals and then brought 3.5 lakh companies into the tax net by imposing a MAT on assets, doing away with the capital gains exemptions so as to be revenue neutral. You have not been able to do that, because various interest groups have lobbied away various aspects? India Inc lobbied very hard against MAT on assets, the market sector lobbied against any change on capital gains and so at the end of the day we were not be able to accomplish much, we should have been able to accomplish more?

A: I dont know whether you need a new tax code for a new economy. It was a question whether the government wanted to make a statement that we are competitive in the market place and we are getting the tax rate down from 35% almost to 25%. We have now come back to lowering the rate of tax to 30%, is good enough so long as we have simplified. I would like to believe that you did not have to go through this entire circus for the last two years, but effectively what we have been able to achieve is this one goal of saying, can we have a tax rate which is simple.

The issue about wanting to tax companies which are not hitherto under the tax net. Either your compliance mechanism is not right in which case if these companies are making profits, you have not been able to catch them or if these companies are not making profits because they have got exempt income, then do you want to tax assets, is that what you want to do on the income tax act? That is something which the government needs to answer.