Finance ministry to recast direct tax panel after discord on suggestions

The finance ministry has decided to reconstitute the task force on direct taxes law owing to differences between the ministry and the panel as well as among the members of the committee. The panel was set up last year.

Senior officials confirmed some of the panel’s recommendations were very similar to those of the draft Direct Tax Code, formulated under the UPA government, which was the reason for the discord.

The finance ministry, however, maintained it did not receive the report from the panel.

There will be a new chairperson of the restructured committee, multiple sources told Business Standard. The government is considering whether to bring in new members or continue with the existing members with a new chairperson.

Sources said the discord at various levels was a key reason the report could not be submitted.

“As the economy undergoes a change, the theories relevant then do not necessarily hold true today,” said a senior official in the ministry.

The Central Board of Direct Taxes (CBDT) extended the deadline for the task force to submit the report by three months till August 22, and further extended it till the end of September. 

Former CBDT member Arbind Modi, the convener and the only government representative on the panel, retired from service on September 30.

Apart from Arbind Modi, the panel included Girish Ahuja, a chartered accountant and director on State Bank of India’s board; Rajiv Memani of EY; Mukesh Patel, a tax advocate; Mansi Kedia of the Indian Council for Research on International Economic Relations; and retired Indian Revenue Service officer G C Srivastava.

“There were differences in points of view, but having differences in such an arduous task benefits the formulation,” said a member on the panel.

Arbind Modi, however, refused to comment.

The government set up the panel in November last year to review the decades-old Income Tax Act and to draft a new Direct Tax Law in consonance with the economic needs of the country. It was originally expected to submit its report to the finance minister by the end of May.

It missed the first deadline because some of its earlier recommendations, revealed to finance ministry officials in internal meetings, were too similar to the draft Direct Tax Code proposed by P Chidambaram as finance minister. The government wants its DTC to be more adjusted to the current economic situation, given the changes in the tax eco-system after the enhanced devolution and the goods and services tax.

Officials say the same problems persisted, especially regarding the methodology of some of the recommendations, which reflected more the economic realities of the past decade. It is learnt this led to the discord. 

A member of the panel, meanwhile, told Business Standard: “My work as a member was done when the draft law was completed. I do not know its current status.”

It is unclear whether the new committee will build upon the report of the Arbind Modi panel or start afresh. As reported in Business Standard earlier, one of the biggest changes that the draft law has likely proposed is doing away with jurisdiction-based assessment and replacing it with specialised teams of direct tax officials, assessing specific cases.

In 2009, the UPA government came up with a draft DTC to simplify tax legislation for individual taxpayers as well as companies.