Tax laws made complicated by exemptions, need to be simplified: Tarun Bajaj

Revenue Secy says govt wanted a stable and predictable tax regime, so very little tinkering was done in the Union Budget

There is a need to simplify direct tax laws as various carve outs or exemptions announced every year have made them complicated, Revenue Secretary Tarun Bajaj said.

“The direct tax code has also become more complicated, lot of exemptions, lot of provisions have come so I think there needs to a complete relook of those carve outs that we do every year, it makes it very complicated to understand even for tax experts, what to talk of the ordinary people,” Bajaj said at a webinar organised by the Bengal Chamber of Commerce and Industry (BCCI).

The government wanted a stable and predictable tax regime, so very little tinkering was done in the Union Budget. “Only one or two exemptions in the new corporate tax regime has given some stability, and the corporate sector has embraced this new structure,” 

Bajaj said based on the analysis for 2019-20 and assessment year 2020-21, 65 per cent income of corporates has come into the new 22 per cent tax bracket, while the remaining 35 per cent continue to avail the old tax regime as their business income is low and can avail exemption. 

However, there is a sunset clause for exemption, and with the sunset, there will be more corporates availing the new tax regime, Bajaj said. With reduction in tax rates for corporates, tax revenue has increased, he added. 

In September 2019, Finance Minister Nirmala Sitharaman had announced a cut in corporate tax to 22 per cent from 30 per cent if companies don’t avail any exemptions or incentives.

On the personal income tax front, the new personal income tax regime is “not laid out well”, Bajaj said. Till about Rs 8-9 lakh annual income, it makes no reason to avail the new tax regime because in the old regime by availing exemptions, there is no tax liability for an individual. However, if the person avails the new income tax regime, he will have to pay tax, Bajaj said.   

“This is work in progress. We will have more data to analyse, and I think if we set this right, we would be moving in the right direction,” he said. Secondly, very few people are paying income tax, Bajaj said.

With the government providing pre-filled data in returns, the expectation is better collection of taxes from taxpayers who weren’t paying taxes earlier. A new provision has been added in this regard that states if taxpayers whose TDS is Rs 50,000 but do not file a return, their TDS liability would double. Bajaj also said that the government has come a long way by taxing people based on their return filing to transaction based taxation. The government gets about 55 per cent of the taxes through TDS. 

Bajaj also said that if the tax revenues continue to grow as it appears to look through corporate results, the Centre’s fiscal deficit can see 0.1 per cent or 0.2 per cent reduction in the revised fiscal deficit for ongoing fiscal of 6.9 per cent.

For the next year, the targeted fiscal deficit is 6.4 per cent, and the government had the opportunity to lower it further. "But increased capital expenditure by almost 35 per cent had forced us to keep the fiscal level at that level", he added.

Bajaj said since last year, the Centre had started giving funds to states for capital expenditure. Unless this is done, the last mile infrastructure will not take place, he added.

"The intention of the government is to keep the GDP growing. Then only income and revenues will be better", he said.

On indirect taxes, the government undertook a thorough review of customs duty, and some exemptions that continued for three decades but are not useful, have been done away with, Bajaj said.

For Production Linked Incentive Scheme and phased manufacturing program, the government has given a four year glide path that some protection will be provided for one-two years but then businesses will have to be competitive. 

Bajaj also said with the government’s resolve to end litigation, the centre will sort out the 14-15 cases this month through the retrospective taxation abrogation legislation. The demand in these cases was about Rs 1.1 trillion.