The draft Direct Tax Code released by the Union finance minister Pranab Mukherjee has elicited mixed reactions from the Bangalore Chamber of Commerce and Industry (BCIC). While the chamber has welcomed the early release of the code and introduction of a completely new law, it said some of the issues need further modification.
BCIC president, K R Girish has expressed surprise in a statement that the finance minister has not proposed any change in dividend distribution tax.
“This is quite surprising as dividend distribution tax is not considered as a creditable tax in most of the countries and thereby suffers double taxation. This needs modification.” The Code is a completely new law and not an amendment of the existing Income Tax Act. This again is a commendable change as one has always experienced tinkering of the existing law, he said.
The scope of taxation has been sought to be changed from source-based taxation to residence-based taxation, this needs more deliberation as it is a major shift, he said.
“Exemption hitherto which was profit based and considered to be regressive is sought to be removed by changing it to an investment linked exemption covering specific industries. This is a very interesting move,” Girish said.
Minimum Alternate Tax (MAT) is to be changed from a book profit tax to a tax as a percentage of gross assets and no credit mechanisms or carry forward to prevail. This would have serious implications on capital intensive projects and needs detailed deliberations, he said.
The chamber has, however, welcomed other measures like rationalisation of tax slab rates; reduction of tax rates for companies to a uniform rate of 25 per cent, rationalisation of wealth tax provisions; carrying forward of business losses indefinitely; and introduction of Advance Pricing Agreements (APA’s) under Transfer Pricing.
“The new Direct Tax Code is an interesting mix of new provisions which are welcome but brings in certain regressive measures. These require detailed deliberations before the same is passed as a law,” he added.
