The Cabinet on Thursday approved the draft of the New Direct Tax Code Bill (DTC Bill). The DTC was introduced as a strategic initiative of the government aimed at providing simplicity, reduction of exemptions with moderate tax rates. The tax rates for corporate as well individuals were proposed to be substantially liberalised, at the same time a plethora of exemption which had creeped into the Act were to be phased out.
In its revised Avatar it appears that the tax rates will remain largely unchanged. The taxable threshold is up by a sum of merely Rs 40,000 from the current Rs 1.60 lakhs to Rs 2 lakhs. Income between Rs 2 lakhs and Rs 5 lakhs is proposed to be taxed at 10%, that between Rs 5 lakhs and Rs 10 lakhs at 20% and that beyond Rs 10 lakhs at 30% – far less liberal from the dream slabs of 10% on income up to Rs 10 lakhs, 20% on income up to Rs 25 lakhs and 30% on incomes above Rs. 25 lakhs. Relief to the tax payers will be marginal.
The rate of corporate tax is proposed at 30% as against 25% in the original DTC. The MAT is being retained at 20%. It is, however, understood that a number of key tax holidays which played an important role in furthering exports are expected to be phased out on implementation of the DTC. It therefore appears that the proposed DTC Bill is an extension of the current income tax law which will result in gradual reduction of exemptions with calibrated reduction in tax rates. Going by this it seems that Bill when released on Monday is likely to retain broad contours of the current income Tax Act 1961.
The real difference between the Direct Tax code Bill and Income Tax Act 1961 has been on account of introduction of several Anti avoidance provisions. A number of far reaching proposals including the much debated General Anti Avoidance Rules (GAAR), are said to be included in the DTC. These provisions confer extraordinary discretionary power in the hands of tax officers and unless there are substantial safeguards built in their exercise, these powers can become source of increased litigation between the tax payer and the Revenue Authorities. In addition to this provisions like Controlled Foreign Corporation Regulations (?CFC?) will increase the compliance costs for companies which have made outbound investments. There several areas of tax administration which needs reforms. It is hoped that with newly acquired powers of administering tax law, these pain points will be addressed under the Bill.
In the light of the above we believe there is a continued opportunity for a further dialogue between the Industry and the Government to move toward a new tax code which is fiscally progressive and will help our business compete in Global market in level playing terms.
The writer is executive director, PWC. With inputs from Amit Agarwal, associate director