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Taxmen feel that Direct Tax Code may lead to loss
September, 21st 2009

Critical of the proposed Direct Tax Code (DTC), senior Income Tax officials feared that it may result in an annual revenue loss of Rs 55,000-crore and that it was not revenue-neutral as made out to be.

"The tax revenue loss could be as high as around Rs 55,000-crore annually with estimated revenue loss in personal Income Tax (PIT) alone standing at around Rs 25,000-crore," senior Income Tax Officials including chief commissioner level officers told.

The officers, mostly based in Mumbai, wanted to remain anonymous, being serving Government officials.

Noting that the new tax code is heavily skewed against the salaried class, they said it attempts to reversed the concept of "pay-as-you-go (earn)" considered to be the rational tax policy all over the world.

Under the garb of providing long-term stability in the tax regime, the tax code in fact would widen the rich-poor gap and create more economic absurdities, the officials which included some commissioners as well, said.

"Take the case of individuals where extensive give-aways by widening the tax base took place. The DTC plans to recover them by taxing pensions, leave encashment, retrenchment, compensation, commuted pensions, VRS compensation, gratuity received on death and drawings from superannuation fund," officials said.

Besides, DTC also plans to recover these give-aways by taxing non-monetary benefits such as LTC, medical reimsbursements, house perquisites, etc, they say.

The direct tax code sought to remove the power of the Central board of direct taxes to issue notification and circulars or to bring amendments, they said, adding those who have drafted it have displayed "a sinister ulterior motive" rarely witnessed in mature democracies.

Also, the press reports that the CBDT has been kept away from this process of preparing the tax code itself showed the "perversity" of the authors.

"Such ill-baked work should not be thrust upon the unsuspecting public," they said.

The new source of tax revenue heavily relied on retirement benefits, termination and gratuity, whereas the other new revenue sources like LTC, medical reimbursements were periodical in nature, they said.

"In other words, new tax sources affect only those minor portion of the vast employee tax base like retirees, persons who availed LTC, medical benefits, etc., whereas the give-aways are to the entire tax-payer population," officials say.

"Taking into account all these factors, it is no brainer to see that we are heading for a steep fall in revenue in FY 11-12, when the proposed DTC comes into effect," the officials said.

With an estimated tax loss of Rs 55,000-crore, the DTC is a disaster and that is precisely the reason why no estimates of the tax losses are provided in the Code, the officials said.

"As per the economic survey 2009, 60 per cent of India's population do not have income of (even) Rs 20 per day. In such a grave situation with about 660-million mouths to feed, why should the Government forego Rs 1.2-lakh as tax from a person earning Rs 10-lakh income," the officials said.

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