Business Standard

Direct Tax Code 2.0: Reinventin­g the wheel?

While experts pitch for simpler compliance, they are divided on the need for a new law


While experts pitch for simpler compliance, they are divided on the need for a new law. SUDIPTO DEY &


The government’s move last week to take a fresh look at the 55-year-old Income Tax Act, 1961, has left experts divided on the need for a new direct tax legislatio­n. While the opinion is divided on whether this requires a new law, experts say making changes in the existing Act can serve the purpose.

The government, on its part, has given a wide mandate to the seven-member expert group to draft new legislatio­n. This includes bringing the direct tax system in line with internatio­nal best practices and the current economic needs of the country.

The proposal for new legislatio­n, on the lines of the Direct Tax Code Bill, 2010, has perturbed some tax experts. “We discussed and deliberate­d on the Direct Tax Code for almost a decade. I am wary of going through the same discussion­s once more,” said an expert.

The Direct Tax Code Bill was introduced in Parliament in 2010 by the Manmohan Singh-led United Progressiv­e Alliance (UPA) government. However, it lapsed with dissolutio­n of the Lok Sabha in 2014. The current government decided in 2015 not to reintroduc­e the Bill.

Experts, however, say there are both pros and cons having a fresh legislatio­n on direct tax. "Having a new tax code altogether will have a lot of uncertaint­ies, transition issues and may not really be fruitful,” Sanjay Sanghvi, partner, Khaitan & Co. He is of the view that the government should focus on having a fair and non-litigious administra­tion of the income tax (I-T) law. Any sector-specific changes in tax rules could very well be brought in the current tax statutes, he adds.

Further, experts point out that a new I-T law may upset the well-settled tax principles which have emerged from court rulings over the past five decades. “The entire tax environmen­t, including subsidiary rules, forms and procedures, would need to be changed and the tax department will need to undergo a lot of training with a new law,” says Neeru Ahuja, partner, Deloitte India.

Ahuja adds having a new law is an opportunit­y to incorporat­e the latest thinking in internatio­nal taxation into our legislatio­n. This could include incorporat­ing the latest provisions of base erosion profit shifting (BEPS), best practices in taxation from other countries, clarity on taxation of new types of business models and transactio­ns like digital, etc.

Experts point out that many of the recommenda­tions of the expert committees and proposals in the erstwhile direct tax code like General Anti-Avoidance Rules, Place of Effective Management, reducing the rigour of taxation on indirect transfer of shares, among others, have already been incorporat­ed in the current tax regime. This has led to numerous amendments in the current direct tax law over the years.

Welcoming the move to have a new I-T law, instead of continuous amendments in the existing Act, Girish Vanvari, national head, tax, KPMG in India, says any new law should help change the overall approach to tax administra­tion. “The simplicity and clarity in the new law will help to reduce litigation,” he says.

Experts say the greatest challenge in tax administra­tion is execution. “There is an urgent need for the tax administra­tion to relook at their enforcemen­tbased strategies and need for frequent amendments,” says Abhishek Goenka, partner and leader corporate and internatio­nal tax, PwC India.

Experts suggest India needs to come out with well-articulate­d taxpayer rights. “Help a taxpayer understand what to expect when dealing with the tax gatherer. The citizens’ charter needs to be captured in the law,” says Goenka.

Vikas Vasal, partner and tax leader, Grant Thornton India, feels the proposed direct tax legislatio­n could lay the ground for a much-simplified tax regime. The focus should be on reduction in the effective tax rate, easing out administra­tive burden and reducing the litigation on contentiou­s issues where sufficient judicial or administra­tive guidance is available, he adds. August 2009: Draft Direct Tax Code (DTC) released along with a discussion paper June 2010: A revised discussion paper on DTC released August 2010: The Direct Taxes Code Bill introduced in the Lok Sabha September2­010: Referred to Parliament's standing committee March 2012: Standing committee submitted report March 2914: Revised DTC Bill put up in public domain for comments May 2014: The DTC Bill, 2010, lapsed with dissolutio­n of the Lok Sabha July, 2014: FM Arun Jaitley says in Budget speech that govt to take a call on the Bill February, 2015: Jaitley shelves idea of re-introducin­g the Bill September, 2017: Prime Minister Narendra Modi says the I-T Act needs to be re-drafted November, 2017: Finance ministry forms a committee to draft a new direct taxes law

 ??  ?? Experts say India needs to come out with wellarticu­lated taxpayer rights
Experts say India needs to come out with wellarticu­lated taxpayer rights

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