Direct taxes code draft law is likely to seek less power for the taxman

The panel charged with drafting a new direct tax code is said to have completed work on the draft law and is expected to submit it to Finance Minister Arun Jaitley this week. One of the biggest changes the draft law could propose is to do away with jurisdiction-based assessment and replace it with specialised teams of direct tax officials assessing specific cases.
 
The new direct tax code, whose committee is headed by Central Board of Direct Taxes (CBDT) member Arbind Modi, was supposed to be submitted in May. The deadline given to the panel was then extended by three months to August, and then again by a month to end-September.
 
Business Standard has learnt from informed sources that the work on the draft code and the accompanying report has been completed. “It will be submitted to the finance minister any time now,” said an official.
 
It is widely understood that while the DTC report may give a direction on income tax and corporate tax rates, there are expected to be no changes suggested in the code itself. “For the income tax slabs and rates, the government has the Finance Bill and the Budget at its disposal. On corporate taxes, the finance minister has already announced phasing out exemptions and a reduction in rates,” said the official.

 
Officials say that rather than leaving too much discretionary powers in the hand of the taxman, the DTC could suggest ways to decentralise assessment.
 
So if a company based out of Delhi is filing tax returns, the assessment will not be done only by Delhi-based officers but by officials around the country, on a centralised database, a second person said. “There could also be a thrust on specialisation. For example, if a manufacturing company files returns, it will be assessed by officers with experience in dealing with such entities. Or officials who know-how to assess the returns of a hospitality company will look at such returns,” the person said.
In essence, the DTC will focus on better administration through improvements in revenue targeting, data collection, and tax intelligence and use of technology in these areas.
 

The panel will suggest ways to bridge the gap between projections and actual results in terms of tax receipts, tax base and revenue buoyancy. Officials say that there is better analysis and gleaning of data required as the difference between what the revenue department projects at the beginning of the year and what it achieves is still substantial.
 
The panel will also recommend ways to better extrapolate segment-wise data so it can be analysed which income group or industry segment contributes more. It will also suggest ways to improve tax intelligence gathering to reduce the number of cases stuck in dispute in various courts.
 
 As far as corporate taxes are concerned, Jaitley had already laid down a roadmap to bring the rate down to 25 per cent, and the panel is expected to back that, with the condition that exemptions should be phased out periodically. Income tax slabs are tweaked in almost every Budget, so even that won’t be touched by the panel.
 
In November last year, the Centre had set up a six-member ‘task force’ to review the Income Tax Act and to draft a new Direct Tax Law in consonance with economic needs of the country. Apart from Modi, the panel includes 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 Icrier; and retired Indian Revenue Service officer G C Srivastava.
 
 The proposal of a direct tax code to replace existing income tax laws was first mooted in former Prime Minister Manmohan Singh’s government. In 2009, the United Progressive Alliance government had in 2009 come out with a draft DTC to simplify the tax legislation for individual taxpayers as well as corporates.
 
The DTC Bill, 2010, which was introduced in Parliament in 2010, lapsed with the dissolution of the 15th Lok Sabha. That bill had proposed annual I-T exemption limit at Rs200,000, and levying 10 per cent tax on income between Rs200,000 and Rs500,000, 20 per cent on Rs500,000-Rs1 million and 30 per cent above Rs1 million. For domestic companies it suggested tax rate of 30 per cent of business income.