Mukesh Patel.in
practical tax & investment planning online
international tax expert / columnist / author / speaker

DUMP THE DIRECT TAX CODE!

DTC virtually beyond repair, present Income-tax Act should be revised to achieve the underlying objectives!

The Direct Taxes Code (DTC) Bill, 2010, was presented in the Lok Sabha on the 30th August, 2010, to replace the existing Income tax, 1961 and Wealth tax Act, 1957 with effect from 1.4.2012.

Tax law, which has been subject to extensive review by the Indian Parliament every year and in-depth scrutiny of the Supreme Court, High Courts and Tribunals, for nearly five decades, is now proposed to be crucified by a legislation, the draft of which has been prepared by a bunch of North Block officials with a bureaucratic mindset.

Though the preamble to the draft claims to have accommodated public opinion raised within a span of only three months, it is a mere eyewash, since the public could hardly have figured out, leave aside digest or comprehend several grave implications. Moreover, no debate was ever sought on whether there was at all a need for a fresh legislation and if there should be one, what should be its shape and frame. To a wrong question, answer could never possibly be right. “You can’t depend on your judgment when your imagination is out of focus”- Mark Twain.

Every major amendment in the Income tax required experts’ opinion, and therefore Government appointed Committees or Commissions with experts on its panels of the stature of eminent jurists like N.A. Palkhiwala, before it was actually implemented. The replacement of the 1922 Act with the 1961 Act was the result of input by Kaldor’s (1956) , Tyagi’s (1958) and Law Commission Reports (1958) and debates, discussions, seminars  for  three long years on the draft prepared by a committee of eminent jurists , consisting of P. Satyanarayan Rao, G. N. Joshi and N.A. Palkhiwala  submitted in  September, 1958.

In the case of DTC, the necessity of such committees, debates, discussions, etc. was not considered necessary, as if to suggest that the draft prepared for the Direct Tax Code, 2010, is as good as or perhaps better than that prepared for the 1961 Act by a committee of eminent jurists and that it is so complete that it does not require and cannot tolerate any debate and discussion. The Government appears to be in great hurry to get it passed as an Act within a span of one year, with the tame formality of putting it to public opinion without any meaningful debate and discussion, with no option to consider as to whether a New Tax Code is at all necessary and if so, what should be its right framework?

A hurried act rarely proves to be a right act. As our old Hindu scripture quotes, “an angry man, a hungry man, a man in love and a man in haste will never do a right thing.” This squarely applies to the draft Direct Tax Code.

DTC boasts of incorporating simplicity, well accepted principles & best international practices.’ But it deceives more than achieve on this count! Infact, on account of some of its highly irrational, harsh and injudicious proposals, DTC has come to be referred to as the ‘Draconian Tax Code.’

With the plethora of drafting blunders, glaring inequities and anomalies galore, still so rampant in the draft of the Revised Direct Taxes Code placed before the Parliament, DTC appears to be virtually beyond repair and needs to be dumped in the larger interests of both taxpayers and the revenue.

The FM and the Parliamentary Standing Committee on Finance really need to consider the more logical option of suitably revising the present Income-tax Act to achieve the underlying objectives of promoting growth with equity. It would be much easier to simplify and rationalize the present legislation with which everyone has been so familiar with over the past 50 years, than experiment with the new Code, the menacing woes and complexities of which seem almost incurable.

In the realm of the present Act, with the growing economy and better tax compliance, the direct tax revenues have grown almost five fold in this decade from Rs.85,000 crores in 2001-02 to Rs.4,25,000 crores in 2010-11 and there is no justification for upsetting the apple cart with several controversial proposals as contained under the draft DTC.

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