In a setback to the efforts of the Manmohan Singh Government to unleash the next generation reforms, the two major big ticket reforms — Goods and Services Tax (GST) and Direct Tax Code (DTC) — are unlikely to happen during 2012.
With the winter session virtually coming to an end and the Standing Committee on Finance, looking into the DTC Bill expressing its inability to table the report in the current session, the introduction of DTC in the budget has taken a backseat. “The Parliamentary Committee has lot of work to do before it finalises the report. It will not be possible to present the report in the winter session and now it will only happen in the budget session,” a senior official remarked.
The Bill, which seeks to replace the archaic Income Tax Act, 1961, was tabled in Parliament in 2010 with an aim to rationalise the tax rates, expand the tax base and minimise exemptions. DTC is all set to miss the April 2012 deadline for its introduction despite the fact that the Finance Ministry officials have done the ground work including preparing the basic rules and guidelines for its implementation.
With the session almost coming to an end, the DTC has met the same fate as the Goods and Services Tax (GST), which is still hanging in the balance in absence of consensus among states. While the GST can be introduced from the middle of the year, same is not the case with the DTC.
Finance Ministry officials said that some of the features contained in the new legislation could be announced in the general budget 2012. These include provisions like Controlled Foreign Corporation and General Anti-Avoidance Rules. The DTC Bill proposed to tax yearly incomes over Rs.2 lakh to Rs.5 lakh at the rate of 10 per cent, from Rs.5 lakh to Rs.10 lakh at 20 per cent and beyond Rs.10 lakh at 30 per cent.
Similarly, things do not look bright for the landmark GST legislation. The Parliamentary Standing Committee is yet to sum up the discussions with various stakeholders on the matter and would not be in a position to submit its report any soon giving credence to reports that GST will finally see the light of day only in 2013.
The UPA II government had hoped to introduce the Direct Taxes Code (DTC) and GST together. But under the given circumstances, it is unlikely to happen. The introduction of the GST will subsume most of the indirect taxes of the Centre and the States. The tax reform has already missed the implementation target of April 1, 2011 and looks all set to miss the deadline of 2012.
The Parliamentary Standing Committee on Finance, headed by BJP leader, Yashwant Sinha, is holding consultations on the GST Bill. It has received feedback from all the Ministries and will now hold discussions with Finance Ministry officials and other stakeholders including industry. The committee would also interact with the Empowered Group of State Finance Ministers, headed by Bihar Deputy Chief Minister Sushil Modi to iron out differences among states for implementing GST.