Why Direct Tax reforms will not happen in April 2013

It is official. Direct tax code (DTC), aimed at simplifying procedures and increasing compliance, is unlikely to be implemented in April 2013.

There were media reports speculating one more postponement.

Finance Minister P Chidamabram has said he will have to take a fresh look at the Bill that was introduced by hi successor Pranab Mukherjee.

[caption id=“attachment_435203” align=“alignleft” width=“380”] On the indirect tax collections, the minister said that he was hopeful that the target of Rs 5.05 lakh crore during the current fiscal would be met. Reuters[/caption]

The idea was originally mooted by Chidambaram himself when he was the finance minister in the earlier term of the United Progressive Alliance. However, the proposals underwent a lot of changes while he was in the home ministry in the present term of UPA.

The code was introduced in Parliament in August 2010 by Pranab. The Bill was, however, referred to a parliamentary standing committee due to the controversial retrospective tax proposals.

The Bill was meant to be passed in April 2012, but got deferred as the there was a delay in submitting the report by the committee.

“DTC has gone through various versions…I need time to look at DTC. I am only 28 days old (in the finance ministry) … It requires a fresh look,” Chidamabram has been quoted as saying in a PTI report.

To a question whether General Anti Avoidance Rules (GAAR) would get postponed again, Chidambaram said, he was awaiting the report of the Shome Committee, which is looking into the concerns expressed by foreign and domestic investors.

On the indirect tax collections, the minister said that he was hopeful that the target of Rs 5.05 lakh crore during the current fiscal would be met.

Chidambaram said the department would have to be firm with the small number of non-compliant businesses.

“Most people would like to be compliant with tax laws. It is only a very small number that wishes to be non-compliant. I have told the department that we have to be firm with the small number of those non-compliant people”, he said.

Chidambaram said he has asked Central Board for Excise and Customs (CBEC) officers to focus more on top 100 tax payers to achieve the indirect tax collection target of Rs 5.05 lakh crore in the current fiscal.

“If you take customs and excise zone wise, top 100 tax payers of the customs, top 100 in excise and top 100 in service tax account for about 95 per cent of taxes collected.

“So really, each charge has to focus on top 100 … All the others contribute only about 5 per cent. So if we maintain an interactive, friendly tax administration with them … we will achieve our target,” he said.

The Minister further said that April-July collection figures of indirect taxes do not reflect the trend, and added, “the numbers beyond August will be more encouraging”.

Indirect tax collection during April-July showed an increase of 22 per cent against annual target of 27 percent.

Chidambaram also made a case for de-centralisation of powers saying that tax administration of a large country like India cannot be run from Delhi.

“Most Chief Commissioners are naturally resentful of the fact that powers are getting centralised. I have assured that powers will be de-centralised. Tax administration of large country like India cannot be run by fiat from Delhi. So large number of powers will be de-centralised and that will attended to next week”, he added.

The tax administration, he added, must be friendly as most people wants to comply with tax laws and get on with other activities.

“It’s only a small number which makes its business to be non-complaint with tax laws. I have held this philosophy very long … We should be friendly to the large number of tax payers who wish to be complaint with tax laws and we have to be firm with the small numbers (who do not comply) with tax laws”, the Minister added.

With inputs from PTI