The fate of two key tax reforms, the Direct Taxes Code (DTC) and the Goods and Services Tax (GST), hangs in the balance, with Finance Minister Pranab Mukherjee set to leave the ministry. Officials at the ministry are also apprehensive of meeting various targets, especially those on subsidies, announced by Mukherjee in Budget 2012-13.
Officials said Mukherjee's exit could affect GST negotiations with states, as he enjoyed support across party lines and was committed to introducing the tax reform. They added a new finance minister might reconsider the introduction of the DTC Bill in its current form from April 2013.
“This DTC Bill does not serve any purpose. Most of its provisions have been diluted, while some proposals have already been implemented under the Income Tax Act. It would be better if the Act is simplified, instead of introducing a new Bill and creating further complications,” said an official.
The original DTC, primarily drafted during the tenure of former finance minister P Chidambaram, was seen as a major tax reform, proposing minimum exemptions and low tax rates. However, the draft Bill, when made public by Mukherjee, drew flak from the industry. As a result, the finance ministry had to do away with most contentious proposals, excluding the vital ones, in the revised draft.
Many felt provisions in the Bill tabled in Parliament were not very different from those in the Income Tax Act. However, since the Parliamentary standing committee on finance did not question the relevance of the Bill, there was no trigger to put it off. A new finance minister may, however, look at things afresh, added an official.
Mukherjee also succeeded in making progress on the GST front, with states agreeing to introduce the Negative List and the General Switched Telephone Network this year. A change of guard at the North Block may disrupt negotiations with states at this key juncture. Though the introduction of GST in one year is not considered feasible even now, the Centre had tried to make some progress on the Constitutional Amendment Bill for the GST, currently being considered by the standing committee. An official said GST was more of a political issue, and officials would wait for directives from the top, particularly on issues like central sales tax compensation to states.
Ministry officials also seem at a loss on how to keep subsidies below two per cent of the gross domestic product this financial year, something Mukherjee had promised in the Budget, without decontrolling fuel prices. The ministry does not seem to favour increasing the duty on diesel cars and diesel deregulation does not seem likely in the near future.
While it’s too early to say anything on the tax collection and disinvestment targets, considering the performance in the first two months of the current financial year, it seems a mammoth task. The disinvestment target for 2012-13 has been fixed at Rs 30,000 crore, while the total tax collection target is about Rs 10,70,000 crore, about 20 per cent higher than last years’ collections.