'Too radical': Centre likely to implement direct tax code in parts

The wait for the proposed Direct Tax Code (DTC) could get longer because the government is of the view that the recommendations on it are too “radical” and require more deliberation.

In addition, it is in favour of implementing in parts the proposals made by the task force on the DTC.

“The report is exhaustive and cannot be implemented at one go. Instead of making the report public, the government would pick some recommendations and implement them,” said a source privy to the government plan.

There were expectations that the finance ministry in the Budget would put the DTC in public for consultation and it might approve key proposals. 

But there was no reference to the task force report in the Finance Bill or the finance minister’s speech.

However, the source said some Budget proposals were part of the task force report. 

One was abolishing dividend distribution tax (DDT). While the Budget has abolished it, the tax liability has been shifted from the company declaring dividend to the receiver. 

The new income tax regime is modelled on the task force’s recommendations. The report suggested doing away with deductions. The government, however, introduced the regime while keeping the old one.

A lot of considerations go into amendments to existing tax laws. The finance ministry has to consider revenue implications, the end-beneficiaries of the new regulations, the economic impact, etc. Then there are also political considerations and whether the changes are in line with the government’s overall plans. The report is being termed “radical” because many of its proposals are not in harmony with the finance ministry’s considerations. 

The DTC aimed to overhaul the 60-year-old Income-Tax Act, 1961, and make the tax system progressive. 

The government appointed a task force headed by former Central Board of Direct Taxes member Akhilesh Ranjan, who had submitted the report in August last year. The report, which is not yet public, is learnt to have proposed sweeping changes in the taxation structure. 

Sources say that the task force has retained the basic exemption level at ~2.5 lakh and proposed four tax brackets by introducing a new slab of 35 per cent for those earning an annual income of ~2 crore and above. 

Towards the last stages of the tenure of the task force, Chief Economic Adviser (CEA) Krishnamurthy Subramanian and the joint secretary (revenue) joined the task force. 

“The CEA held different views, and I am happy we were able to discuss all the issues. We explained the tax perspectives to him because many a time economic concepts do not fully tie in with tax matters. But we could arrive at a consensus on all aspects, and various views, not just of the policymakers but others also, were distilled (into the report). It was practical, pragmatic work,” Ranjan had said in the interview to Business Standard.

On marrying the tax matters with economic concepts, he had said, “It is a challenge when somebody joins an ongoing project and there are disparate views on many matters. But on the whole, we benefitted from the CEA’s participation. In the final reports, there were many concepts that are his contribution and many ideas we were able to modify, bringing into account the perspectives of an economist and a management expert. Though it did become more difficult as time went on, it helped the result, he had said.