Periodically voices are raised in favour of direct tax reforms. But attempts to change the system have so far largely been in vain. Now once again it is under consideration to have a committee on tax reforms.
If such a committee is indeed formed it would have several predecessors. There was the Inderjeet Committee, Tyagi Committee, Wanchoo Committee, Boothalingam's report, Choksi Committee, L K Jha's reports, Chelliah Committee and lastly the expert group appointed in 1996. All of them failed to simplify tax laws.
There have been many reasons for this. One important reason has been lack of adequate homework before constituting high powered bodies. There has been no consolidated thinking as to what is proposed to be achieved by the amendment of the existing tax laws, what has been the deficiencies in their working and how these need to be tuned with the fiscal policies and five year plans of the government in future.
No attempt is made to clearly identify the fiscal objectives sought to be achieved through tax laws and precisely indicate the areas that the tax reform body is expected to cover. The following two instances concerning the terms of reference of two such bodies clearly show that practically no homework was done to indicate specifically what these committees should
examine.
Wanchoo Committee: This Committee was appointed on the basis of a resolution which says that `... a committee of experts is appointed to examine and suggest legal and administrative measures for countering evasion and avoidance of direct taxes'.
The expert group appointed in August 1996 was asked "to examine the existing Income-Tax Act structure and to suggest changes that have become necessary particularly in the light of the new economic policy."
Obviously, the terms for inquiry being of a general nature, the reports submitted did not serve the purpose of taking a coordinated view of various tax laws, rules, notifications, circulars issued by the Central Board of Direct Taxes (CBDT) and various judicial controversies concerning such laws. The committees chalked out their own scheme of work with the result that on the basis of such reports a consolidated view has not been possible to make the laws subserve their basic purpose and these continue to remain long and complicated and not fulfilling the government's objectives.
Speaking at the annual general meeting of the Federation of Indian Chambers of Commerce and Industry on November 20 about economic reforms, the Prime Minister has said that for their success, all acts have to be taken together.
This view applies to tax reforms in no less measure. Hence, before taking a decision for appointing another body for tax reforms, the CBDT should solicit taxpayers' views concerning the working of the present laws and what more needs to be done to these to make these taxpayer friendly.
It is necessary to prepare a detailed paper regarding areas to be covered, bringing out weaknesses in the present laws and rules, how judicial controversies should be resolved, the parts of the Acts which need to be simplified.
It is necessary to identify sections of the laws and procedures which have become obsolete. It is also important to know whether a common tax code and national tax courts are feasible, whether there could be any substitute or supplementary law to income tax, whether agricultural income and wealth need to be taxed, whether the nuclear family should be made a unit of taxation.
A committee must examine whether a number of incentives and exemptions in tax law should be reduced to the minimum, whether gift tax needs to be reintroduced for checking tax avoidance.
Very comprehensive terms of reference are necessary to enable the new committee to give worthwhile suggestions for reforms. The committee should be given sufficient time to submit its report.
