The Government’s plan to re-introduce the Direct Taxes Code Bill 2010 in Parliament’s winter session has stirred up a storm. The much-debated tax regulations, which are aimed to replace the Income Tax Act of 1961, have been pending clearance for quite some time now — since August 2010, to be precise. Finance minister P. Chidambaram, the chief architect of the Bill, has seen it wallow away during the tenures of his then successor and current predecessor.

Despite his efforts to get the Bill passed, it appears the tax reform’s clearance is still a long way off. In this context, it would be interesting to see what can be done to get DTC out of the closet?

Let’s recap. When DTC was issued for public comments in August 2009, three major elements were focussed upon — minimising exemptions, removing the ambiguities created by conflicting judicial interpretations, and checking erosion of the tax base.

The very introduction of DTC was meant to make the tax law accessible to the common man.

But as things went by, the objective has moved elsewhere.

And soon — between August 2009 and June 2010 — all hell broke loose. After the draft was analysed and the devil in the detail was detected, the following broad consensus emerged amongst pundits:

The DTC seems to be the same wine in a different bottle; it doesn’t address the ambiguities

Exemptions were not minimised, but exterminated, committed deductions to stakeholders such as Special Economic Zones were withdrawn unilaterally

Tax treaty commitments were sought to be disregarded by creating an overriding effect of the code over the treaties in the name of curbing tax evasion

Since the controversies were legitimate, certain modifications were effected after protracted representations that resulted in the revised DTC Bill 2010. Notwithstanding the hectic activity around building consensus, the Bill was eventually diverted to the Parliamentary Standing Committee on Finance (PSC).

The Salient Features The PSC started meandering through the Bill through 2011. By then, the urgency of getting some critical provisions across — such as the General Anti-Avoidance Regulations (GAAR) and advance pricing agreements — became daunting.

As the PSC was looking into the proposals, their incorporation into the Act, before the panel cleared them, was impossible. Therefore, the political machinery was in a hurry to ensure that the PSC delivered its report. Finally, in March 2012, the PSC did submit its report.

Interestingly, the PSC listed nine salient features and came up with several observations and broad recommendations. Among these, one was on GAAR. The PSC recommended that the burden of proof should be with the department rather than with the tax payer and not the other way around as was outlined in the Code.

The second was the observation that the DTC missed an opportunity to incorporate features that resulted in the tax regime being more tax-payer friendly and demanding accountability of assessing officers, particularly the overzealous ones.

Two issues Let’s analyse these two aspects. GAAR was introduced in the Finance Bill 2012 in the old form, disregarding completely the recommendations of the PSC. Which meant the onus continued to be with the tax payer rather than the department, and not much heed was paid to the maturity and preparedness of such a regime.

It is well known that the Bill also created a considerable stir that prompted the Government to set up a committee under Parthasarthi Shome to study the various provisions.

We also know that eventually GAAR provisions were substantially rolled back. The second aspect of the regime being tax friendly continues to be a sore point with all tax payers.

The attitude of “guilty unless proven innocent” does not create adequate trust in the system.

Aggressive assessments, particularly in transfer pricing matters continue unabated. In this backdrop, it is absurd to envision that a mere change of form could change attitudes and create a tax friendly atmosphere.

So back to the question as to what could be the intent of flogging a dead DTC horse? All intended modifications such as GAAR, advance pricing agreement provisions, indirect transfers, etc. are incorporated in the Act already.

The introduction of DTC now is, therefore, unnecessary, not to mention how expensive and time consuming it will be for all stakeholders to adopt a new form with all the old content intact. Perhaps, innocuously, there is a hidden intent of diluting all the court rulings that seem to be favouring the tax-payers?

(The author is Executive Director, Tax and Regulatory Services, PwC India.)

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