Govt puts DTC Bill on back burner

Beneficiaries of code getting a quiet burial include rich religious trusts, multinational firms

Govt puts DTC Bill on back burner

Finance minister Arun Jaitley has put the proposed Direct Taxes Code (DTC) on the backburner to focus on improving tax administration and curbing litigation. This means some controversial taxes envisaged in the code will not make it to the statute book anytime soon, not even in the existing Income Tax Act.

Some of the far-reaching concepts in the code, such as tax anti-avoidance rules, have already been incorporated in the income tax law.

The obvious beneficiaries of the code getting a quiet burial are rich religious trusts as well as Indian and foreign multinational companies, who would be spared of certain new taxes.

Besides bringing trusts catering to specific religions and communities both under the income and wealth taxes, the code had proposed to tax the un-repatriated profits held abroad by Indian MNCs under new Controlled Foreign Corporation Rules. It had also proposed a 15% branch profit tax (BPT) on foreign companies in India treating their profit after tax as distributable dividends.

BPT was designed similar to the dividend distribution tax in the case of domestic companies. Now, foreign companies pay corporate tax at 40%, which the code had planned to reduce to 25%, bringing them at par with the domestic companies, which were also to be taxed at the same rate, down from the current 30%.

The move to focus on reducing litigation and improving administration is in line with the priority Prime Minister Narendra Modi has set for improving governance rather than announcing big bang legislative reforms.

?It is a welcome move to focus on improving tax administration. Bringing any new changes in law at this juncture can only disturb business environment and unsettle investors, no matter how simple it might be,? said Rahul Garg, partner, PwC.

The priority now is to resolve past tax disputes as well as to reduce new ones reaching tribunals and courts by taking up only those cases that would stand the test of judicial scrutiny. Signing more Advance Pricing Agreements (APAs) with companies to avoid transfer pricing disputes and improving quality of assessment by making foolproof cases are also top on the agenda. Increasing the share of tax deducted at source and advance tax payments in the gross direct tax receipts is also high on priority.

The finance ministry is of the view that the most important proposals in the DTC such as General Anti-Avoidance Rules (GAAR) and Advance Pricing Agreements (APA) have already been incorporated in the Income Tax Act.

The NDA government is clearly not in the favour of kicking up a fresh controversy by adopting in the current law the controversial proposal in the code of bringing charitable trusts dedicated to a particular religion or community under the purview of income and wealth taxes.

The DTC had proposed income tax as well as a 1% wealth tax on such trusts dedicated to specific religions by excluding them from the definition of non-profit organisations.

The DTC proposal to tax un-repatriated profits held abroad by Indian MNCs, too is not a priority for the government, which is clearly keen to encourage the expansion of Indian corporations.

?DTC?s purpose was to have a new legislation that would not require any further change for the next half a century. Since important ideas in the Code are already part of the law, the need of the hour is to focus on more pressing (governance) issues,? said a person privy to the development.

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First published on: 18-08-2014 at 00:33 IST