New Delhi: In another setback for the reform agenda of the Congress party-led United Progressive Alliance, the government’s ambitious direct taxes code (DTC) is set to miss its roll-out date of 1 April.
This is because the parliamentary standing committee on finance has expressed its inability to submit its report on DTC in the ongoing winter session, effectively making the implementation of DTC from the start of the next fiscal impossible.
“I tried my best, but I don’t think it is possible to table the report in this session,” said Yashwant Sinha, chairman of the committee.
With the goods and services tax (GST) facing opposition from the states, the government had been hopeful that it will at least be able to usher in reforms in the direct taxes space. Finance minister Pranab Mukherjee said at an international tax conference earlier this month that DTC will be implemented from the next fiscal.
The delay in DTC is a clear setback in the government’s efforts to simplify tax laws, said Sudhir Kapadia, tax markets leader at audit and consulting firm Ernst and Young. “With both GST and DTC getting held up, it will delay the government’s tax reforms.”
The coalition government was recently forced by resistance from opposition parties and some of its own partners to backtrack on a decision to allow 51% foreign direct investment in multi-brand retail and 100% in single-brand retail, flagged as a key reform measure aimed at creating jobs and boosting the economy.
The direct taxes code Bill, 2010, aims to broaden the tax base by removing exemptions, reducing ambiguities in the law, and curbing instances of tax evasion. It will also plug loopholes in existing laws concerning cross-border transactions. When passed, it will replace the Income-tax Act of 1961 and the Wealth Tax Act of 1957.
“Once the standing committee submits its report, the government will have to examine the recommendations and make requisite changes to the Bill that will have to be then vetted by the law ministry,” said a senior finance ministry official, who didn’t want to be named. “If the redrafted DTC has to be tabled in Parliament in the budget session, then the standing committee needs to submit its report at least by the end of the winter session.”
With the delay in the tabling of the standing committee report, the government, which has so far been optimistic about bringing in this tax reform from the next fiscal, will have to wait for another year for the roll-out as unlike GST, DTC can be only implemented at the beginning of a fiscal.
Press Trust of India news agency cited finance secretary R.S. Gujral last month as saying that if the report of the standing committee is delayed, the roll-out date might be missed.
“If the standing committee submits its report before the end of the winter session, then the timelines are in order. Then we can have it in the budget session,” he was cited as saying.
The standing committee report will now only be tabled in the budget session, Sinha said.
Sinha, however, refused to take blame for the delay. “It is a humongous Bill and raises various issues which are worrying people,” he said.
“If the job of parliamentary committee is to talk to all stakeholders then nobody can accuse us of delaying it.”
“The ministry in any case would not have been able to do it by next year. They have to draft the Bill again for Parliament, taking all the approvals and then getting it passed by Parliament and the issuing of notification would take time”, he added.
For its part, the finance ministry is going ahead with preparations for DTC, and “work on the formulation of rules is progressing well,” the finance ministry official cited above said.
The government does have the?option of incorporating some of the provisions of DTC in the Finance Bill for the next fiscal.
“If there are revenue considerations, the government can introduce some provisions of DTC in the finance Bill. In that case, DTC will be reduced to simplification of laws rather than a big reform”, Kapadia said.
“It is, however, better to bring all the provisions in a harmonious manner rather than in a piecemeal form.”