)
Chances of the Direct Taxes Code (DTC) becoming a reality appear bleak. Though the first draft was floated for public discussion five years ago, a decision is yet to be taken.
Officials in the Central Board of Direct Taxes (CBDT) do not seem optimistic about the fate of the proposed new direct tax regime, mooted to replace the Income Tax Act of 1961. The original draft was put in the public domain in 2009; it was revised the next year, before being presented in Parliament in 2010. Subsequently, it was referred to the standing committee on finance, which gave a report on the matter in 2012.
Last year, the finance ministry tried to bring the revised DTC draft before the Cabinet but a decision on this was deferred. As such, DTC Bill, 2010, lapsed with the dissolution of the 15th Lok Sabha.
In March this year, former finance minister P Chidambaram had put up a revised DTC draft for public comments. "The draft Bill on the (CBDT) website is for public discussion. We had put it at the fag end of the previous government's tenure. Now, there will be a meeting with the finance minister to decide the future of the DTC Bill," said an official in the finance ministry.
He added there was a view within the CBDT that the Bill wasn't required.
In his Budget speech, Finance Minister Arun Jaitley had said, "My predecessor had placed a revised code in the public domain in March. The government will review the DTC in its present shape and take a view on the whole matter." He added the government would consider the comments received from stakeholders in this regard.
While an official said not many comments had been received on the draft code, another said the feedback had been irregular.
When contacted, the Confederation of Indian Industry and the Associated Chambers of Commerce and Industry of India said they hadn't sent their comments so far.
A CBDT official said the DTC was just a simplified version of the I-T Act. "That's the only advantage it offers," he said, adding nobody, tax professionals or tax officers, wanted the DTC.
Neeru Ahuja, partner, Deloitte India, said, "It is unlikely the DTC is a priority for the present government."
An official said as of now, one had the sections of I-T Act in mind but once the DTC is implemented, one had to unlearn every thing and memorise the new sections. "Most of its proposals have already been incorporated under the I-T Act," he added.
The DTC Bill tabled in Parliament in 2010 had proposed General Anti-Avoidance Rules (GAAR), advance-pricing agreements and taxation on indirect transfer of capital assets, among other things. All these had been provided under the I-T Act, though GAAR is scheduled to come into effect from the 2016-17 assessment year.
The finance minister has assured GAAR would be reviewed once the Monsoon session of Parliament was over.
In fact, there have been demands taxation of the indirect transfer of capital assets, included in the Finance Act of 2012 through retrospective amendments of the I-T Act, be reversed. In his Budget speech, Jaitley had announced a CBDT committee would be set up to look into fresh cases that resulted in fresh liabilities.
Another important aspect of the DTC was giving exemptions to investments, rather than profits. For this, Budget 2011-12 had imposed minimum alternate tax on book profits of developers and units in special economic zones. Though there were demands to roll it back, Jaitley, in Budget 2014-15, didn't oblige.
DTC provisions yet to be introduced or announced include those on controlled foreign company (CFC) and exempt-exempt tax (EET). CFC provisions pertain to taxing undistributed incomes of global entities controlled by Indians (distributed income is already taxed). It was felt the income earned from offshore entities was deliberately not distributed to Indians, to defer tax.
These provisions were present in the Bill tabled in Parliament, as well as in the revised draft DTC Bill, 2013. The revised draft also proposed another tax slab of 35 per cent for those earning Rs 10 crore a year.
"Jaitley has already said the government doesn't favour a high-tax economy. The revised DTC draft, if implemented, will increase tax liability for some companies as well as individuals," Ahuja said. She added while CFC would increase tax on some companies headquartered in India and with units in other countries, the proposal for 35 per cent tax would raise tax liability on some individuals.
The issue of taxing long-term savings at the time of withdrawal has also been debated. Under the existing system, contributions, accretions and withdrawal are exempt from tax (EEE method) in government provident fund, recognised provident fund, public provident fund and traditional life insurance schemes. However, the 2009 DTC draft had proposed to exempt only contribution and accretions to funds in these schemes, while it was suggested withdrawals be taxed (EET method).
After the proposals drew flak, the Bill tabled in Parliament in 2010 proposed to bring back the EEE method of taxation for specified provident funds and approved pure life insurance products. It also proposed to extend the benefits of the EEE scheme to annuity-based products. The revised DTC draft Bill, 2013, is silent on the issue.
Ahuja said if the government wanted to offer EEE benefits to some schemes such as the National Pension System, it could be done by amendments to the current I-T Act.
STATUS QUO LIKELY
| Officials in the Central Board of Direct Taxes (CBDT) do not seem optimistic about the fate of the proposed new direct tax regime, mooted to replace the Income Tax Act of 1961
| The original draft was put in the public domain in 2009
| Last year, the finance ministry tried to bring the revised DTC draft before the Cabinet but a decision on this was deferred
| In March, former finance minister P Chidambaram had put up a revised DTC draft for public comments
| A CBDT official said the DTC was just a simplified version of the I-T Act. "That's the only advantage it offers," he said, adding nobody, tax professionals or tax officers, wanted the DTC.
