Finance Minister Pranab Mukherjee on Friday said that the government had identified seven critical areas in the Direct Taxes Code (DTC) for further scrutiny before finalising the draft. These include the move to impose Minimum Alternate Tax (MAT) on gross assets and the proposed shift in the system of taxation of savings schemes.
At an interactive session here with the three apex chambers — Federation of Indian Chambers of Commerce and Industry (FICCI), Confederation of Indian Industry (CII) and Associated Chambers of Commerce and Industry of India (Assocham) — and representatives of trade and industry, Mr. Mukherjee said: “The areas identified after interactions with all stakeholders are: the concept of Minimum Alternate Tax based on gross assets; capital gains taxation in the case of non-residents; the Income-tax Act and the double taxation avoidance agreement (DTAA); general anti-avoidance rule (GAAR); issues relating to effective management control and taxation of foreign companies in India; taxation of charitable organisations; and shift from EEE (Exempt Exempt Exempt) to the EET (Exempt Exempt Tax) taxation system.
Allaying apprehensions over the schedule for implementation of the new taxes code, Mr. Mukherjee assured industry that the next step would be taken only after a “comprehensive review” of the draft DTC by the Finance Ministry by taking on board the suggestions received. “Every effort would be made to meet the aspirations and expectations of our taxpayers and our vibrant corporate sector,” he said.
In particular, the proposed change in the calculation of MAT irked the industry as the DTC sought to impose minimum tax on the gross assets of a company instead of its gross profit. As for the tax savings schemes, the DTC proposed to bring all of them under the EET category which would mean payment of tax at the time of withdrawal of money.
At present, several savings schemes such as PPF (Public Provident Fund) are under the EEE category wherein investment, accrual and withdrawal are all exempted from tax.
Mr. Mukherjee said that it had been the government’s endeavour “to incorporate the best practices prevailing across the globe and to use innovative methods for attaining equity, vertical and horizontal, ensure growth with sustainability, create a stable fiscal eco-system and have well regulated free markets.”
The new tax code would also take into account established and time-tested practices which have withstood judicial scrutiny. “We want to present the stakeholders with a tax regime which is simple and broad-based, leading to lowering of tax rates, better tax compliance and reduced litigation,” he said.
The Finance Minister noted that while he had kept his promise by putting the draft code in public domain within 45 days, he would also like to expedite the process to give it a final shape as an effective instrument for meeting the economic challenges and development priorities of the country.
After the interaction with the industry chambers, Mr. Mukherjee pointed out that the new DTC would have to be approved by Parliament and would be implemented only after “a comprehensive review” and modification of the proposals. “It is to be effective from 2011,” he said.
Revenue Secretary P. V. Bhide, who was also present at the interactive session along with other senior Ministry officials and Minister of State for Finance S. S. Palanimanickam, said: “The draft would be tabled in Parliament during the winter session or the following session in February.”