The Hindu Business Line : Tax revenue losses will continue for a while, says Pranab

The country’s tax revenue losses will continue for over a decade as the new Direct Taxes Code may not be able to make good the exemptions under old tax laws.

Other measures

“At least for this period, an additional revenue measure such as minimum alternative tax (MAT) is necessary for the Government to meet its expenditure obligations. Any increase in fiscal deficit could lead to further taxation resulting in higher interest rates,” the Union Finance Minister, Mr Pranab Mukherjee, said at a seminar on the Direct Taxes Code.

Mr Mukherjee said that the introduction of MAT is an additional method (to raise revenue) in the background of potential revenue loss in both personal and corporate income tax when the new tax regime comes into effect.

Describing the new tax code as “futuristic and a bold move,” Mr Mukherjee said it is not a modified version of the existing tax laws.

He said the Direct Taxes Code will be introduced in Parliament during the winter session. He urged the industry leaders to start giving their suggestions as early as possible.

He said till last week, over 80 per cent of the responses to the Direct Taxes Code rated it as excellent, very good or satisfactory. The new code will come into effect from April 1, 2011.

On whether the government will honour all international agreement even after the Direct Taxes Code comes into effect, he said that under the Vienna Convention, international agreements have to be honoured in good faith. “India has an unblemished record for honouring agreements. There is no reason for international business to be apprehensive about.” To another question, Mr Mukherjee pointed out that the government could look at revising the avoidance of double taxation agreement.

MORE UNDER NET

Earlier, during an interactive session with the industry leaders, the Union Revenue Secretary, Mr P.V. Bhide, said that with the introduction of asset-based MAT, more number of companies will come under the tax net.

He pointed out that of the over four lakh companies that file returns, only about 50,000 pay taxes. “MAT is a transitory phenomenon. Asset-based MAT is extremely important for tax reforms,” he said.

He said the entire tax code is revenue neutral under the existing levels of compliance. “We cannot structure a tax code based on better tax compliance,” he said.

Mr Bhide said taxing charitable organisations according to the new tax code should not be seen in a negative light.

He said charitable organisations alone do not serve people. “Taxes are collected to serve the people,” he said.