The finance ministry is likely to float a discussion paper next month on the proposed new income tax law, which aims to simplify the existing law and phase out tax exemptions.
Information emanating from North Block indicates that the full draft income tax code may not be made public now. The salient features of the code may be put in public domain for discussion and debate, an official source said. This may happen just before the next Parliament session that begins on October 17, the source added.
As over 700 days have passed since the expert committee under the chairmanship of Arbind Modi submitted its report on September 18, 2006, to Finance Minister P Chidambaram, many have started expressing doubt whether the government has the political will to make public the new tax law when the general elections are round the corner.
Chidambaram was on record in public forums that the draft law would be made public by 2007-end, which he later changed to January 2008. In fact, the Parliamentary Standing Committee on Finance had passed strictures against the ministry in April this year for the delay in introducing the draft direct tax code for legislation.
The main mandate to the committee was to rephrase the existing voluminous Income Tax Act, 1961, to remove redundant sections and make the language simple for easy understanding of law by the common man.
The new tax code is likely to have a road map to phase out area-based exemptions for companies and businesses in Himachal Pradesh, Uttarakhand, the North-East, Sikkim, Jammu and Kashmir and Kutch. Similarly, exemptions or deductions available to companies under Sections 10A, 10B and 80IB, and to trusts under Section 12A of the Income Tax Act is likely to be done away with to check distortions in tax regime. On the other hand, it may seek to keep tax rate lower and stable.
Looking at the present complexities involving tax exemptions and deductions in India, simplification will not be possible by mere rephrasing of the existing Act, a finance ministry official said.
Most of the court cases, which run into several thousands, are mainly due to refusal of income tax exemptions or deductions, the official said.
Simplification of tax laws, lesser discretionary powers to tax officers and detailed laws with suitable clarifications top the wish list of companies from the new income tax code, according to a survey by PricewaterhouseCoopers.