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Direct tax code to rationalise tax incentives

While double taxation may be done away with, the new code will also seek rationalisation of tax incentives as the tax give-aways from such incentives account for 5-6 per cent of GDP.

Published: 30th July 2019 07:38 AM  |   Last Updated: 30th July 2019 07:38 AM   |  A+A-

Finance Ministry

For representational purposes

Express News Service

NEW DELHI:  The new draft direct tax code, which is expected to be submitted to the finance ministry on Wednesday, is likely to call for tax integration so that there is no double taxation; it will also seek rationalisation of tax incentives as the tax give-aways from such incentives account for 5-6 per cent of GDP.

The panel readying the report has sought either removal of taxes such as the Securities Transaction Tax and Dividend Distribution Tax, or a form of set-off against the income-tax paid. “The problem is that a person’s income cannot be taxed twice. So, we believe that the panel would do that to ensure there is tax integration,” said Sanjay Kumar, senior director with Deloitte Haskins & Sells LLP.

The report, which will be submitted to the finance ministry, will be studied by the Central Board of Direct Taxes as well as the revenue department’s top brass, and suggest changes before going for a political decision.

Though there are hopes among many that the direct tax code will also call for cutting taxes both for personal income-tax and corporate taxes, finance ministry officials point out that with an economic slowdown, it would be difficult to give any tax cuts at this stage, though a long-run goal of cutting taxes and tinkering with slabs so that effective taxes go down would be fine.

“There is very little fiscal space for tax cuts at this stage. The budget has already cut corporate taxes to 25 per cent for most companies. We will have to wait for more time and as and when the economy picks up, think of being bold with taxes,” a top finance ministry official said.

India’s GDP had dipped to a 17-quarter low of 5.8 per cent in January-March 2019. Yet, the government has set ambitious tax collection targets, which represent a massive 25.3 per cent rise in net tax revenues, something officials feel would be difficult to achieve.

However, rationalising tax incentives given on a huge number of counts is expected to be on the cards in the report. Officials said that while some incentives would have to stay, as without these nascent industries such as start-ups would face problems, a large number of tax incentives including those for SEZs may be done away with.

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