Post Rao era, most reforms in tax laws have promised a lot but delivered very little. VAT was announced with a view to avoid cascading effect of taxes and reduce the burden of compliance on the business community. In reality, govt revenues have gone up, incidence of tax has gone up and burden of compliance has not changed one bit. Instead, the increased emphasis on C form for inter-state transactions and increased resistance of the Deptts in issuing these C forms have not only made life more difficult for the business community but also the whole exercise is looking meaningless (there is no incentive for an intrastate sale to be disguised as interstate sale that C form would reveal, because intra-state sale will enable input credit for the buyer while interstate will not).
Likewise, DTC was announced by Finance Minister, Mukherjee to be a revolutionary tax reform for simplification, rationalization and what not. The first draft was a classic repetition of history where too many adverse proposals will be introduced, public will protest and focus will be concentrated on a handful of such adverse proposals which will be diluted and the end result will be a number of adverse proposals passed through legislation quietly. What DTC has achieved is:-
1) Reduction in tax rate slabs, and intention not to revise tax rates every year,
2) Doing away with surcharge on corporate tax, and reduction of corporate tax rate to 30%
3) Increase in MAT rate from 18% to 20%
4) Abolition of the concept of long term capital gain
This is a very small part of tax changes brought about by govts every year, and could easily have been done in the existing income tax act itself. What has gone out of attention of the public is more revolutionary such as definition of capital asset itself. Now, sale of all agricultural lands anywhere in the country will come within the tax net and exemption will be available only if it is reinvested in another agricultural land. Lawfully, each and every farmer, and each and every tribal habitant no matter how remotely they are located, can be issued notices by income tax office to show why they should not be imposed tax on their capital gain arising out of sale of such land. Not only it will be impossible for the Deptt to administer such exercise properly, but also it will be highly breeding ground for corruption, and so on.
I have a strange feeling that in last over 10 years, no tax reforms are done with the intention that is expressed in preamble to such reform. There is always a hidden agenda for collecting more revenue, and to have greater control on the public. No such intention has been expressed in last 60 years to check corruption despite every raid yielding crores under the sack. They could easily have made it imperative for every politician and govt servant to file detailed income tax return with Cash flow statement and Balance Sheet, with reconciliation with the previous year’s, something that Chidambaram proposed to introduce for all tax papers a few years ago. If intention is genuine and noble, a compulsory tax of such return could be introduced with a provision to change auditors every three years, and all such tax returns be brought within the purview of RTI.
With corruption taking a good part of our revenue, and with govt (centre+states) revenue being anywhere around 12 to 15% of GDP of this country, the focus better be shifted from extracting more revenue to curbing misuse and making more effective use of existing revenue. The eye wash of such dummy tax reforms such as DTC should be resisted.