Mukesh Patel.in
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international tax expert / columnist / author / speaker

DTC PANEL MOOTS MAJOR REFORMS!

Seeks more rational exemptions, liberal tax rates, greater accountability in administration & taxpayer friendly regime!

                   “We want taxpayers to celebrate DTC. I can assure you that our committee will make sure that the Direct Tax Code (DTC) is made as taxpayer friendly, as judicious and as equitable as possible,” assured Yashwant Sinha, former FM and Chairman of the 31 member Parliamentary Standing Committee on Finance, while responding to the presentation made by your columnist on the occasion of the interactive session on the ‘Challenges of Direct Tax Code’ held at Ahmedabad in May, 2011. It is indeed heartening for the taxpayers at large that the spirit of this positive assurance stands reflected in ample measure in the 364 page Report of the Parliamentary Panel on DTC presented to the Speaker on March 9, 2012.

Revised personal Income-tax rates as proposed

Taxable Income (Rs.)

Rate of Income-tax (%)

Upto 3 lakhs

Nil

3 lakhs to 10 lakhs

10%

10 lakhs to 20 lakhs

20%

20 lakhs & above

30%

Revised Wealth-tax rates as proposed 

Taxable Income (Rs.)

Rate of Income-tax (%)

Upto 5 crores

Nil

5 crores to 20 crores

0.5%

20 crores to 50 crores

0.75%

50 crores & above

1%

                  

LINK EXEMPTION LIMITS WITH INFLATION INDEX

              Keeping in view the inflationary trends in the economy and the imperative to leave more disposable incomes in the hands of individual tax payers, particularly those in the lower income bracket, the Committee has recommended that the basic income-tax exemption limit should be raised to Rs.3 lakhs from the proposed Rs.2 lakhs under the draft DTC Bill. The Committee has observed that, “Higher exemption limit would go a long way in minimizing the compliance and transaction costs of the Income Tax Department, which can now focus their attention and re-orient their resources on the higher income groups, untaxed or concealed incomes, and categories and sectors that are avoidance or evasion prone.”

               While maximum tax rate of 30% was proposed on taxable incomes over Rs.10 lakhs under the DTC Bill, the Parliamentary Panel has been far more bold and liberal in proposing personal income-tax rates (see Box). The Committee has also noted that, “Almost every year, the exemption limit is being tinkered with, albeit marginally. This, however, does not have any linkage with the price index or the growing inflationary trend.” The Committee has, therefore, desired that there should be a built-in mechanism embedded in the statute itself based on Consumer Price Indices, whereby the tax slabs would be automatically and periodically adjusted for inflation. “This would bring inherent stability in tax rates and structure, while minimizing the burden of tax planning. Such a tax regime based on moderate rates would not only bring fiscal stability but also lead to much higher compliance and revenue collections in the long run.”

              On Wealth-tax, the Committee has opined that the proposed ceiling of Rs.1 crore (as per DTC Bill) is unrealistically low, considering the inflationary trends in the economy and the sky-rocketing prices of real estate, which compel even the middle classes to buy residential properties at exorbitant prices. The Report has noted that, “The Committee, therefore, believe that the wealth-tax ceiling should be substantially increased to Rs.5 crores to reflect the current realities, and beyond that limit, tax should be payable on slabs basis (see Box).

DISCIPLINARY ACTION FOR IRRATIONAL ASSESSMENTS

             The Committee has candidly noted that DTC has missed an opportunity to incorporate certain new features in the proposed tax regime of the country, which would make it make more tax payer friendly vis-à-vis the existing tax system. Remarking that, “Accountability of assessing officers was not present in the existing tax administration,” the Panel has observed that, “A negative fallout of the absence of accountability was that more often than not over-zealous assessing officers made exaggerated assessments and raised additional demands without sufficient grounds. This has been the major reason for complaints of harassment and unwarranted tax litigation.” The Committee has, therefore, desired that this lingering issue is appropriately addressed in the Code. It has advised that, “With a view to enforcing accountability of the Department, the unreasonable tax demands raised and adjudicated, if finally quashed at higher levels, should be adversely reflected in the career dossier of the concerned officials. Proper disciplinary action should be taken against such officials responsible for irrational assessments.”

NEED FOR MORE USER FRIENDLY DRAFTING

              Commenting on the need for more user-friendly drafting, the Committee has noted that the bulkiness of the statute has been sought to be reduced by creating large number of Schedules containing detailed provisions similar to the clauses in the main body of the Bill, creating more confusion than clarity, which may also compound the problems for the courts to interpret. Noting that “the arrangement of chapters and sequence of clauses lack coherence and definition provisions have been sequenced towards the end of the Code, rather than at the very beginning as per established practice,” the Committee has desired that the Ministry should have a re-look at this structure and ensure that chapters/clauses are self-contained and easy to comprehend and make use of.

              The Committee has also expressed its concern about the extensive rule-making powers provided in the draft Code. Noting that that there are around 200 clauses in the Code, which expressly leave scope for rule-making, the Committee has stated that such extensive rule-making powers would compromise the supreme authority of Parliament. “It is therefore necessary that substantive matters conferring discretionary powers to tax authorities and matters impinging on vital taxpayer-interest are brought in the Code itself.”

              Look forward to coming issues of ‘AM Tax Clues,’ when we shall discuss many more issues of readers’ interest as proposed in the bold and pragmatic DTC Panel Report.

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