Pranab favours more debate on Direct Tax Code

Legislation may be introduced in the Monsoon Session of Parliament

While ruling out a review of the Budget proposals, such as higher minimum alternate tax on corporations, the government today said that it will conduct another round of consultations before finalising the Direct Tax Code. At the same time, it warned that its legislation, and the proposed goods and services tax could take some time.

At the customary post-budget meeting with industry associations, Finance Minister Pranab Mukherjee said that the revenue department will factor in the feedback on the draft Direct Tax Code and release it for public comments.

“This time the (consultation) process will be shorter. But the legislation will take some time as we are rewriting the Income Tax Act. The standing committee will also invite suggestions. Even if it is introduced in the Monsoon Session (of Parliament), I will not get a report till the end of the Winter Session,” he said.

Mukherjee said that he will consider more incentives for higher savings later. Revenue Secretary Sunil Mitra said that dividend distribution tax, which has to be paid at more than one level as companies have multi-tiered operations, and other issues would be discussed while finalising the revised draft of the Direct Tax Code.

In response to a question on the implementation of GST, he said that the endeavour is to introduce the new indirect tax regime from April next year. Mukherjee, however, added that there are multiple players involved in preparing the framework and there are a host of issues on which a consensus is yet to be arrived. “We are not the only actor, 28 states are there…We were also waiting for the recommendations of the Thirteenth Finance Commission. In the next meeting with state finance ministers, we will discuss all these issues and try to build a consensus.”

At their meeting with Mukherjee, companies sought a review of the proposed increase in MAT from 15 per cent to 18 per cent. The finance minister said that it was not plausible to reconsider the proposal.

While some automotive executives said that the higher excise duty of two percentage points was expected, they were worried about an increase in interest rates in the coming months. Mukherjee said that the Reserve Bank of India had so far stayed away from increasing policy rates and had only tried to suck out excess liquidity by increasing the cash reserve ratio by 75 basis points.

He also said that monetary tightening may not address the issue of inflation which is driven by four commodities — pulses, wheat, rice and sugar. “It is not linked to monetary policy but is on account of supply-side bottlenecks. RBI is aware of the requirements of the industry; so crucial rates have remained unaffected,” the minister said.

Mukherjee said that government borrowings, which are budgeted at Rs 4,57,000 crore (gross) in 2010-11, are unlikely to affect private fundraising. “When I am going to borrow Rs 3,81,000 crore (on a net basis), there is the possibility of crowding out. This year’s programme will be worked out in such a way that private sector borrowing is not elbowed out,” he said.

Mukherjee sought to comfort industry by saying that though he has partially rolled back the fiscal stimulus, he is still deliberating the necessity and timing of full withdrawal. He said that the withdrawal will have to be gradual and in a calibrated manner, and only when both consumption and investment are sufficiently robust.