The next Budget is some months away but already the air is rife with
expectations, what with the Finance Minister announcing the arrival
of a new income-tax code before end-2007. The Companies Bill, 1993
and the Companies Bill, 1997 flattered to deceive. Neither of them
was carried to fruition.
Working Draft
The Working Draft of the new I-T Act was put in the public domain
during the twilight years of the last century, but no one knows why
it was given the quietus. Perhaps it rubbed some people on the wrong
side with its path-breaking measures, such as professionals being
taxed presumptively on 70 per cent of their receipts with 30 per
cent thereof being deemed to be the expenses.
The Budget-making activity has been over the years preceded by
extensive consultations with chambers of commerce, lobbies and
pressure groups. But such consultations seem to be conspicuously
absent this time around in the context of the new I-T code on the
anvil.
Maybe, the Finance Minister feels that the presence of too many
cooks not only spoils the broth but also mars the prospects of a
wholesome law that is fair to everyone. But the ideal of course is
extensive consultations without allowing the pressure groups to sway
final decisions. Be that as it may.
Why junk IT?
It is not clear why the extant I-T Act, 1961 is sought to be junked.
Granted it is a patchwork of amendments, but then a statute like the
Constitution cannot remain static. Amendments have to be made from
time to time in response to the dictates of time and in the light of
new facts and strategies coming to light.
Unless, therefore, the Government has got plans up its sleeves
proposing seminal changes in the scheme of income taxation, it would
be better advised to continue with the existing law with a few
changes to correct the distortions, ambiguities and irrationalities
it is marred by.
The salaried class is now feeling the heat of heavy taxation more
than ever with no leeway to reduce the burden that is available to
the business sector. In all fairness to them, the one-size-fits- all
ceiling of Rs 1 lakh under Section 80C must be removed in favour of
more liberal and flexible ceiling of one-third of the salary income.
This would foster savings besides checking the financial haemorrhage
which taxes mean for them.
Presumptive taxation
The extant schemes of presumptive taxation are virtually dormant
with few adherents for want of proper enforcement. The one obtaining
for retailers is the best one could have bargained for.
A presumption of 5 per cent profit from turnover for retail
businesses up to a turnover of Rs 40 lakh is the most benign regime
one could think of given the huge margins available. To wit, a
turnover of Rs 30 lakh translates into a presumptive profit of Rs
1.5 lakh.
Non-senior male shopkeepers would have to pay Rs 4,000 ignoring
education cess as tax. Intrepid males, of course, have the luxury of
becoming chivalrous and anointing their better-halves as owners
given the fact that non-senior ladies enjoy tax exemption on income
up to Rs 1.45 lakh or better still the senior citizens in the family
who enjoy nil tax up to Rs 1.95 lakh.
Levity apart, the truth is our tax laws lack the teeth at the
elementary level. It is all right to raid the big fish. But it is
also necessary to shake up the teeming millions of traders dotting
our landscape to send the message across that the Government means
business.
Procedural hassles
The procedural law in fact is the nightmare, especially for non-
business taxpayers. It is not fair to tom-tom the facility to file
returns on the Internet with a simultaneous exhortation to follow up
with a visit to the income-tax office to file the signed return if
one has not signed the return digitally while filing over the Net.
And the futility of asking the salaried taxpayers to file the return
must be stopped unless of course they have income from other sources
which they have not declared to their employers or have a claim of
refund by reason of the employer having been remiss in deducting tax
in excess.
After all, every employer gives all the details to the tax
administration of what he has deducted from his employees besides
being practically cast into the dual role of assessing officer for
his employees.
The increasing tendency to view corporates as a one-stop-tax-
collection centre is dangerous. Tax on dividend is collected from
them and not from the beneficiaries and tax on fringe benefits
enjoyed by employees is collected from them and not from the
beneficiaries on the ground that many of these benefits defy precise
pigeon-holing that is a sine qua non for reaching out to the
beneficiaries.
Stock options, for example, can be easily identified with the
employees receiving them. Yet, the employer is required to pay FBT
(fringe benefit tax) on this benefit with the liberty to recover the
same from the employee. Why not seek out the benefiting employees
direct?
In fine, it does appear that the extant law only needs fine-tuning
unless a major overhaul is on cards.
S. Murlidharan
(The author is a Delhi-based chartered accountant.)
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