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Panel on income tax reforms to submit report in a few days; implementation may spill over to next year
August, 28th 2018

A new direct tax code may involve change in rates and slabs that will require amendments in the Finance Bill, which is unlikely to happen in an election year when an outgoing government usually presents only an interim budget/vote on account

A committee headed by Arbind Modi, member of the apex direct tax policy making body Central Board of Direct Taxes (CBDT), will submit a draft new direct tax law in the next few days, two people familiar with the development said.

“The committee had to submit the draft law on May 22, but was given a three-month extension (which gets over in August). The report will be submitted to the government in the next few days,” a government official told Moneycontrol.

Consultations and debates will follow after and if the government decides to make the draft public, the official said.

The discussion on reforms pertaining to taxation started in September, 2017, when the Prime Minister Narendra Modi said that more than half a century old Income-Tax Act needs to be re-drafted and a new Direct Tax Code (DTC) needs to be introduced in ‘consonance with economic needs of the country’.

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Acting upon it, the finance ministry on November 22 constituted a task force comprising six members, as well as the Chief Economic Adviser (CEA) Arvind Subramanian, as a permanent special invitee in the task force.

Subramanian is currently not a part of the committee as he resigned from his post of CEA last month to return to academic research in the US.

Apart from Arbind Modi, who is heading the task force, Girish Ahuja, practicing chartered accountant and non-official director, State Bank of India, Rajiv Memani, chairman and regional managing partner of E&Y, Mukesh Patel, practicing tax advocate in Ahmedabad, Mansi Kedia, consultant, ICRIER, and G.C. Srivastava, retired bureaucrat are part of the team.

Modi, who spearheaded the formulation of the draft law, will retire on September 30. The bureaucrat had also worked closely with former finance minister P Chidamabaram to prepare Direct Tax Code, 2009.

The erstwhile UPA government had finalised DTC and had introduced the Bill in the Parliament in 2010. However, the Bill lapsed with the dissolution of the 15th Lok Sabha. It aimed at simplifying tax legislation, widening the tax base, while removing a number of exemptions.

The task force is in the process of drafting a direct tax legislation keeping in mind, tax system prevalent in various countries, international best practices, economic needs of the country, among others. Some of the provisions of the DTC such as General Anti-Avoidance Rule (GAAR) and Place of Effective Management (PoEM) has already been implemented.

However, government's plans to simplify the tax regime may spill over to next year, and may well have to wait until the next government is in place in 2019.

A Parliamentary approval may look into the draft tax policy proposals before it is voted into a law, which could take even a year. By the time all the changes are incorporated after consultations with the stakeholders, it may be time for the general elections, 2019.

Besides, a new direct tax code may involve change in rates and slabs that will require amendments in the Finance Bill, which will unlikely happen in an election year when an outgoing government presents only an interim budget/vote on account.

According to a tax expert, the task force could re-look some key tax provisions as well as a review of significant areas of tax administration procedures.

“Some key tax provisions which may be reviewed are--deduction for interest on debt, liability for dividend tax, minimum alternate tax on corporates, presumptive taxation, tax incentives for individual savings in a changing work life scenario and taxation of investment of capital as well as return on capital, among others,” Gokul Chaudhri, Partner, Deloitte India said

“The significant areas on tax administration procedures could be--further leveraging technology to promote functional specialisation and ease taxpayer interface, reviewing dispute resolution mechanisms within the tax administration, and integrating tax information and filing across direct taxes and GST to reduce the compliance burden,” Chaudhri said.

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