The Finance Minister, Pranab Mukherjee seems to have taken it as challenge to enforce the Direct Taxes Code (DTC) from April 1, 2012, the way he has been making announcements about this at various times from different forums. The latest declaration in this regard was made on December 7, 2011 while inaugurating the 4{+t}{+h} Conference of International Tax Dialogue at Vigyan Bhawan, New Delhi, before the delegates of nearly 109 countries.
It is now apparent that the stage for this has not been reached and FM's optimism to bring it in force from April 1, 2012 cannot materialise. Doing so in hurry, without detailed consideration of the various provisions of new law, would be fatal to the taxpayers as well as for tax administration. The recommendations of the Standing Committee of Finance regarding the DTC are yet to be received and only less than 100 days are left for the targeted date.
IDEAL CODE
The DTC is going to be a landmark in the fiscal history of direct taxes in the country and it is necessary that before the Code becomes an integrated statute for the direct tax laws of the country, the Code that emerges with Standing Committee's report, is well discussed in various forums to emerge as the ideal Code for a country, whose requirements for poverty reduction and infrastructure developments are massive and where the laws are to be simple and taxpayer friendly to elicit large voluntary compliance.
Further, after the Standing Committee's report is received, its suggestions will have to be incorporated in the Bill and then the Bill re-introduced for discussion and passing by both the Houses. This can now be done only in the Budget session, where besides presentation of budget for the year 2012-13, many other legislative works, including on Lokpal Bill, have to be done.
Thus, justice cannot be done to DTC in the budget session, if the same is to be passed after proper discussion and not by voice vote.
It also needs to be kept in view that the proposed Code raises many controversial issues and has to be re-done after the first draft prepared under the guidance of the then FM, P. Chidambaram, was found to be deficient and badly drafted. Hence, it is necessary that future Tax Code of the country is as perfect as possible. This should not be done hurriedly as a challenge that the DTC, in any case, has to be made operative from April 1, 2012.
NEW LOOK
Further, since the DTC was conceived, thinking has emerged that looking to the fiscal needs of the country, specially for infrastructure sector, the revenue needs have greatly accelerated and new avenues to boost the same have to be thought of. Hence, binging back the taxes like Inheritance Tax and Expenditure Tax in more pragmatic ways have to be given consideration and the Code will have to be given a new look.
Also, there does not seem to be any particular hurry to stick to the date of April 1 and usher in an imperfect and incomplete DTC. The hurry is against the past precedents, when exercise of this magnitude has been undertaken. There are also no instances of such work, being done by mere 5-6 officers of the Revenue Department and not by a cross section of experts. The present Act, that is, the I.T. Act of 1961, was drafted by the Law Commission of India in about two years' time after extensive discussions and debates.
Canadian Tax Reforms
In other countries also, the tax reform exercises involved extensive deliberations with patience.
The Canadian Tax Reforms were passed through three major stages. In the first stage, the Canadian Tax System was studied in detail by a group of tax and public finance specialists, resulting in a six-volume report with 27 supporting staff studies, which was presented to Parliament in 1967.
The report provided a blueprint for the tax revisions that would have fundamentally altered the existing system.
The second stage began with a national debate on the Carter report and ended with the publication of a white paper containing the Government's proposals for tax legislation.
The final stage began with Parliamentary debate on the white paper and ended with enactment of Bill 259 at the end of 1971.
The DTC exercise is quite in contrast to the work done in Canada regarding tax reforms.
Hence, it is necessary that making April 1, 2012 as the operative date for DTC as a prestige issue, should be given up and the new DTC should be enforced after due deliberations to become an ideal legislation in India, which could be considered as a model by other countries.
For this, the FM needs to announce, like GST law, that the DTC will also operate from April 1, 2013 so that the taxpayers are able to plan their affairs for the FY 2013-14 in regard to tax savings from investments, etc.
(The author is a former chairman of CBDT.)