By Tarunkumar G. Singhal | Raman Jokhakar Chartered Accountants
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Finance minister Arun Jaitley has constituted a committee of experts to suggest changes to income tax law with the aim of simplifying it, providing a stable environment and reducing the incidence of litigation through removal of ambiguities. The aims are unexceptionable but the approach is puzzling. during his budget speech, Jaitley said he saw no merit in pursuing a new direct tax law. But controversies since then over the law’s interpretation forced him to engage in firefighting, which has now culminated in the expert committee. i ndia needs a new direct tax code underpinned by an integrated approach to reform, rather than piecemeal change.
The last six years have seen three finance ministers struggle to reform the direct tax code. The first draft in 2009 was the most comprehensive attempt to change the code, but it wasn’t fully implemented. i n the interim, problems multiplied as the law was not in sync with structural changes in the economy. Litigation has grown. a t the end of 2013-14, Rs.2.59 trillion of direct taxes claimed was under dispute. Problems aren’t going away as the recent controversy over MAT on foreign portfolio investors showed.
Jaitley should restart the exercise of a comprehensive new direct tax code. experience suggests that piecemeal reform merely works as apalliative. Not long after an effort at piecemeal reform, a controversy erupts and the fallout spills over to other areas of the economy. t he only way for Jaitley to avoid frequent bouts of crisis management is to completely overhaul the existing law. Blueprints of earlier attempts make it easier to get started and exclusive central control of direct tax means that the legislative process for a new law will be easier.
