Rajesh Ahuja | New Delhi | October 21, 2014 | Hindustan Times
The government has set itself a deadline of six months to implement Direct Tax Code (DTC) and Goods and Services Tax (GST) as part of its action plan to ease the doing business in India.
Besides rolling out the DTC and GST as part of simplifying tax regime in country to push Prime Minister Narendra Modi’s ‘Make in India’ initiative, the government has drawn an ambitious action plan to improve India’s ranking in ‘Doing Business Report’ of the World Bank and it includes measures like providing electricity connections within two weeks of applying.
The department of industrial policy and promotion (DIPP) on Tuesday held an interactive session with babus of the all stakeholder ministries to have a better understanding of the issues involved.
In its ‘Doing Business in India’ report of 2014, the World Bank has ranked India at 134th place. At the inauguration of Make in India’ campaign, Prime Minister Narendra Modi called for substantially improving India’s rank. At the moment India lags behind China (96), Nepal (105), Pakistan (110) and Bangladesh (130) in the ranking. PM Modi wants to bring the country in top 50 rankings.
The DIPP after a detailed exercise identified the sectors, specific activities and ministry of department where reforms are required.
The DIPP in its action plan has flagged issues like reduction of number of taxes, online payment of taxes to expedite implementation of direct tax code and goods and services tax for the finance ministry. The plan has set a deadline of six months for rolling the DTC and GST regime.
According to the DIPP, at the moment, firms make 33 tax payments in a year and spend 243 hours a year filing preparing and paying taxes.
The government also wants to introduce payment of VAT refund directly in the account of firm and in a time-bound manner.
For the ministry of power, the agenda is simplification of process of electricity connection. At the moment it requires seven procedures and takes 67 days. The government wants to bring it down to two weeks. Besides it also wants to remove the requirement of pollution control certificate for providing the electricity connection.
According to the action plan, the ministry of corporate affairs is expected to bring down the time taken in registration of business in India from existing 27 days to one day. Besides, doing away from the requirement of company seal to minimum paid up capital for starting a business are also part of the measures that the corporate affairs ministry is to take within three months to 30 days.
Source : http://goo.gl/kHBXHv
Deccan Herald News Service
Sweeping changes: People will pay less tax but evasion will be difficult
The proposed Direct Tax Code is a combination of major tax relief and removal of most tax-exempted benefits. It is expected to usher in a new tax regime of transparency and greater compliance writes Dilip Maitra.
When archaic rules have to be replaced with new ones, the changes must be dramatic and path breaking. This is what Union Finance Minister Pranab Mukherjee conveyed to all taxpayers when he introduced the draft Direct Tax Code (Tax Code) last week. The Tax Code, now open to public debate, will be introduced as a Bill in Parliament’s winter session. If passed, it will become the new Income Tax Act, replacing the existing four decade old IT Act of 1961. The new IT Act will come into force from April 1, 2011. (this is delayed read here)
In the foreward to the Tax Code Mukherjee explains that the aim is to eliminate distortions in the tax structure, introduce moderate levels of taxation, expand the tax base, improve tax compliance, simplify the language and lower tax litigations. Initial analysis shows that most of these objectives are achievable by tweaking of some provisions.
Talking to Deccan Herald, KPMG Executive Director Personal Taxation, IT & ESOP Vikas Vasal said “The new proposals are in the right direction. They will simplify regulations and reduce unnecessary litigations significantly.”
Agreed Bangalore Chamber of Industry & Commerce (BCIC) President K R Girish. “The Code is a completely new law and not an amendment of the existing Income Tax Act. This is a commendable change as one has always experienced tinkering of existing laws, ” observes Girish.
Major gains for individuals
What do the major changes proposed in the Tax Code look like? Personal income tax, almost all salaried persons will agree, in our country is one of the highest in the world. More open and honest an employer is in terms of disclosing remunerations, worse it is for the employees because taxable income goes up. The present system thus rewards dishonesty and non-disclosure of income by way of lower tax. The Tax Code will try to address these issues by significantly lowering income tax and by disallowing all tax-free perks. It proposed exemption of income tax on specified savings up to Rs 3 lakh a year as against the present deduction limit of Rs 1 lakh for all types of savings under 80C of the IT Act. The catch, however, is that a few long term investments like public provident fund, employer’s provident fund, insurance premium in pension (annuity) schemes, Post Office National Savings Scheme etc will be eligible for tax exemption.
But contributions to fixed deposits, interest and principal payment on housing loans, educational expenses of dependents, and a host of other forms of savings will not qualify as eligible for tax savings. The thrust, clearly, is to induce long term savings for future needs.
The Tax Code also raised income tax slabs significantly, lowering the tax burden on individuals. The draft proposed exempting the general tax payer from paying tax for income up to Rs 1.60 lakh a year.
According to the proposal, a tax payer will pay at the rate of 10 per cent for income above Rs 1.60 lakh and up to Rs 10 lakh, at 20 per cent on income between Rs 10 lakh and Rs 25 lakh and at 30 per cent for income beyond Rs 25 lakh.
At present, while the basic exemption limit remains at Rs 1.60 lakh a year, the limit for tax slabs are much lower — one pays 10 per cent tax on income ranging between Rs 1.60 lakh and Rs 3 lakh, 20 per cent between Rs 3 lakh and Rs 5 lakh and 30 per cent beyond Rs 5 lakh.
Thus, for an individual with taxable income of Rs 10 lakh a year tax payment will drop from Rs 1.68 lakh to Rs 51,000, a net annual saving of Rs 1.17 lakh. The exemption limit for women and senior citizens will continue to be Rs 1.90 lakh and Rs 2.40 lakh, respectively.
Not without pains
If the finance minister is for giving major relief to tax payers, he will also make sure that there aren’t many avenues to avoid taxes. So, as a rider, the Tax Code proposes to add all perquisites enjoyed by a tax payer to income for the purpose of tax calculations. In other words, allowances like leave travel, furnishings, entertainment expenses, conveyance, medical etc, will be added to income.
Similarly, the tax treatment for post-retirement benefits may prove to be a major dampener. Money saved in specified instruments like PPF and PF for getting tax exemption will become taxable when they are withdrawn later.
These investments, when accrued, were earlier exempted from tax. The Tax Code says that under the Exempt Exempt Tax (EET) system all withdrawals will attract tax because the amount withdrawn will be treated as part of the income for that year.
But in the Tax Code it is unclear if the employee’s contribution to PF and PPF will be taxed at the time of withdrawal. KPMG’s Vasal says that this is an anomaly that needs to be corrected. He believes that only the employer’s contribution and interest accrued to the account will be taxed.
Though taxing financial gains available after retirement will pinch the retired people, Vasal is of the view that the proposal is equitable as income is liable to be taxed at least once.
However, as a relief to senior citizens, tax exemption limits for them should be raised to Rs 5 lakh per annum instead of Rs 2.40 lakh at present. The Tax Code, however, specified that the tax exempt status currently available to withdrawals would continue to apply to amounts accumulated in post-retirement savings schemes like PPF, EPF, etc, up to March 31, 2011. Money that accrues from April 1, 2011 will be taxed on withdrawal. (Prospective basis and not retrospective)
Wealth tax benefits
The proposed Tax Code has sought to make major changes in wealth tax calculations and rates.
The threshold limit for wealth tax will be raised to Rs 50 crore from the present Rs 30 lakh and the tax rate was reduced from 1 per cent to 0.25 per cent.
But, in a smart move, to expand the scope of taxation the Tax Code included financial assets like shares, corporate bonds, fixed deposits, etc in wealth tax. The valuation of these assets will be done at cost or at market price, whichever is lower. In case of capital gains tax too, the Tax Code proposed some sweeping changes. It has done away with the present system of short-term and long-term capital gain tax, and replaced it with a uniform structure and gains will be taxed at the marginal tax rate as applicable to the tax payer. The implications of these changes are clear: The period of holding has no bearing on the tax payable and bigger investors will be taxed at higher rates than the smaller ones.
A mixed bag
For the corporate world, the proposed reduction in the tax rate to 25 per cent from the existing 30 per cent is certainly good news and will help lowering the tax burden of India Inc in a big way. But at the same time the Tax Code proposes to do away with many exemptions that help lowering the tax. In a significant policy change, the Tax Code plans to discontinue all profit linked incentives for area-based investments like setting up plants in a backward area or in the north-east with investment-linked incentives in specific sectors like infrastructure, power, exploration and oil production etc.
Moreover, under the new proposal, tax holiday will not be for a specific period, as is the case now, but will be equal to all capital and revenue expenditure barring land, goodwill and debts.
Once a firm recovers the permitted investments and profits will be taxed. This change is aimed at incentivising capital formation in critical areas and remove incentives to shift profits from the taxable unit to the exempted unit.
On the mat
The Tax Code has also proposed changes in the calculation of minimum alternate tax (MAT) payable by corporates. MAT will now be levied at 2 per cent of the value of gross assets of a firm in case of all companies except for banks which will pay tax at 0.25 per cent. This shift in MAT from book profits to gross assets is aimed at encouraging optimal utilisation and increased efficiency of assets.
But Ernst & Young Partner- Tax & Regulatory Services, Sudhir Kapadia feels that this proposal seems to run counter to the objective of encouraging of capital investments for productive growth. Vasal of KPMG also of the view that changes in MAT rule will cause hardship to loss making companies as they will have to pay tax on assets.
Carrot and stick
If the Tax Code is generous in giving relief to tax payers, be sure, it will also make life miserable for those who evade tax through fraudulent means. As the Tax Code prescribes stiff penalties and prosecution for non-compliance with the tax laws, it proposes that every tax offense under the Code will be punishable by both imprisonment and fine.
Apart from defaulters, the Tax Code proposes to punish tax consultants who help in tax evasion. It gives sweeping powers and blanket protection to Income Tax officials for initiating court proceedings on matters relating to tax offences.
Source : http://goo.gl/vYPKq
SHISHIR SINHA, BUSINESS LINE | NEW DELHI, FEB. 20:
The critical reform Bill on Direct Taxes Code may get delayed further, as it has not been placed in the list of the Bills scheduled for consideration and passage during the Budget Session starting on Thursday.
Just last month the Finance Ministry had highlighted the ‘Direct Taxes Code’ as a policy reform, unveiled during road-shows in Singapore and Hong Kong. The road-shows were meant to attract foreign investment. The Bill was introduced in Lok Sabha on August 30, 2010 and was referred to a Standing Committee on September 9, 2010. After detailed examination and hearing views from various stakeholders, the Standing Committee on Finance, chaired by former External Affairs and Finance Minister Yashwant Sinha submitted its report to the Lok Sabha Speaker on March 6, 2012, which was subsequently presented to Lok Sabha and laid in the Rajya Sabha on March 13, 2012.
Apart from various recommendations, the Committee suggested raising the income-tax lower slab to Rs 3 lakh from Rs 2 lakh, which is also the current structure as well as proposed in DTC Bill. It did not recommend any change in the proposed rate of 30 per cent corporate tax for companies. It also made a suggestion to raise the minimum threshold for wealth tax to Rs 5 crore.
These recommendations are not binding on the Government and the Bill is free to move to Parliament for consideration and passage, with or without amendments. However, to garner wide support, the Government is considering some amendments and will obtain Cabinet approval.
It may be recalled that on January 31, Advisor to the Finance Minister Parthasarathi Shome had said that the Government would come up with a modified Direct Taxes Code (DTC) Bill after incorporating the suggestions of the Standing Committee.
Earlier, there was a thinking that the new tax system would come into effect from April 1, 2013. But, last year, Finance Minister P. Chidambaram indicated that the Government might not be able to keep this date.
On August 28, 2012, when he was asked about it, he had said, “I can’t say. DTC has gone through various versions.”
Source : http://goo.gl/ZJ1Z2