The Hindu Business Line : Hopes from the new code

In 2005 it was announced that a simplified income-tax code would be introduced. After a gap of almost four years, the Finance Minister, Mr Pranab Mukherjee, during the course of his Budget speech, provided certainty with regard to its introduction.. He has hinted at structural changes in the direct tax code. The foremost challenge would be to ensure voluntary tax compliance which can only be achieved if the code is equitable and fair..

The report of the taskforce on the implementation of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, did seek to encourage voluntary compliance as one of its fundamental objective. Similarly, the measures to consolidate the framework of deductions and exemptions so as to simplify the existing code should not be lost sight of in framing the new direct tax code.

It is expedient to progress in achieving a single uniform rate of tax for individuals and eliminate unnecessary complexities which make “tax payments more taxing”. Further, the statement of revenue foregone for the financial years 2007-08 and 2008-09, which was placed before Parliament along with the Finance Bill 2009, would also act as an eye-opener in terms of analysing areas where fiscal consolidation can be achieved.

Keep pace with change

The tax laws cannot remain static, as it will have to keep pace with the new economy and the challenges associated thereto, particularly with the growing integration of the Indian economy with the rest of the world.

The second generation reform, such as introduction of anti-avoidance regulation, framework of tax consolidation, rules relating to cross-border business reorganisations and taxation of new financial instruments, ought to find mention in the new code.

(The author is Partner, Tax Practice, Amarchand Mangaldas.)

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