New direct tax code likely to cut rates, widen net

MOPUP Govt wants collections to be 18% of GDP from 5.6% now

NEW DELHI: Lower income tax rates, and more tax-payers — that’s the overall aim of the new direct tax code being put in place by a committee appointed by the Narendra Modi government, according to an official familiar with the matter, who asked not to be identified.

It is unlikely individual taxpayers will get to celebrate anytime soon, although the official mentioned a timeline of 2019. The panel, set up in November, has been given six months to submit its report, but the understanding in the government is that it could take longer, another finance ministry official said in November.

Still, it is significant that the government is thinking of lower rates as current tax rates and tax slabs are already more liberal than the ones suggested in an earlier draft direct tax code prepared by a panel under the United Progressive Alliance government.

The first official also added that the aim is to get more people to pay tax (currently only 4.5% of India’s 1.3 billion population does) and take the direct tax-toGDP ratio to as close to 18% as possible, and explained the logic behind the 18% number. At present, about 20% of GDP is out of taxation on account of exemp- ti on given to agricultural income, which will continue in the proposed new direct tax code as well.

Other exemptions, and varying slabs, account for another 20% of GDP from the direct tax base. A 30% tax on the remaining 60% of GDP should have brought in around 18% of GDP. However, the current direct tax-to-GDP ratio is 5.6%.

Experts termed the target asp irational .“It is along term vision that needs a robust and calibrated plan to make it a reality,” said Mukesh Butani, founder, BMR Legal, a law firm that specialises in tax advisory.

Still, it is likely the target is directional, and even a marginal improvement will help increase India’s overall tax-to-GDP ratio. Including direct taxes and indirect taxes, this is currently 10.8% of GDP( excluding state taxes) but likely to increase because of the unified Goods and Services Tax introduced this year.

The broadening of the tax base will provide the leeway to cut tax rates, explained the first official. “You have to collect taxes from someone to give relief to someone else as public expenditure can not be compromised.” In theory, lower tax rates and liberal tax slabs could also mean more compliance, resulting in a so-called virtuous cycle, meaning more people pay taxes. The finance ministry on 22 November setup a task force with Central Board of Direct Taxes member Arbind Mo di as convener and chief economic advisor in the finance ministry Arv ind Sub ram ana ian as a special invitee to draft a new direct tax code in the light of global best practices and the economic needs of the country.

NEWDELHI: It’s now 33 years since the terrible Bhopal Gas Tragedy. I’d call it a double tragedy. Not only because of the terrible harm it inflicted on people who haven’t received an iota of justice till today, but because India hasn’t learnt the lessons at all.

One would have imagined that after the tragedy, India — the state, business and citizens — would realise that poisons kill, both slowly and instantly. One would imagine that they would ensure this won’t be repeated.

Unfortunately, we are in the midst of the worst possible toxic nightmare today. Cities across India are reeling under air pollution. People are dying. Instead of remembering Bhopal, we find runs and cricket matches played with gusto, as if pollution is not a problem. We have other pollution issues too. We can’t drink the waters of our rivers, or assume the soil is safe enough to plant in.

Although I am tempted to say that all middle-class Indians, sufficiently empowered, should hang their hands in shame, I would much rather we act. Our laws exist, semi-implemented, but we have to act as communities. A key way forward would be to cut down our consumption by half. This needs community support and action, otherwise you are outsider. Equally important is fighting back. When you learn about polluters ruining entire villages, lend support as best you can. Talk about it. Make a noise, not only for yourself, but poor. Anything less will be mocking tragedy those years ago.