Suggestions of the Institute of Chartered Accountants of India

The Income-tax Act, 1961 [I.T. Act], with large number of amendments made in nearly last fifty years, has become very complex leading to litigation and uncertainties. Considering the sea change in the nation’s economic policy and environment, the country certainly needs a new Income-tax law. Accordingly, the proposal for enacting a new Direct Taxes Code [DTC], and the process adopted for its introduction is certainly a step in the right direction.

Some of the features incorporated in the DTC are worth appreciating, such as the policy of reducing rates consequent upon reducing incentives/exemptions, rates of taxes being provided in the DTC itself, specific provision restricting double taxation of the same income, specific provision that no double deduction will be permitted, substitution of market value as on 1 .04.2000 in place of cost for the purpose of computing capital gain in case of investment asset etc. The stated objectives are also laudable. At the same time, some of the conceptual changes proposed in the DTC are highly debatable.

While preparing the new tax law, it should be borne in mind that in the present Income-tax Act, over the years, the position of law with regard to large number of provisions has got settled and it may be inadvisable to disturb settled concepts. Otherwise, the DTC could result in large scale litigation that would take few decades to settle and ultimately, will meet the same fate as the Income-tax Act. The DTC also has to be fair, equitable and

clear. There are issues in this regard that need to be addressed in drawing up the proposed Direct Taxes Code. The impact of provisions such as GAAR and the possibility of these being used as tools for harassment of genuine taxpayers needs to be seriously considered - especially because these are drafted to reverse the onus of proof on the assessee.

The Institute of Chartered Accountants of India, formed under an act of Parliament, views the profession as a partner in nation building. We hold no brief for those who evade taxes. Rather, it is our belief and endeavour that defaulters should be strongly acted against. However, in doing so, the rule of law, equity and justice is paramount. It is equally necessary to recognise that in the liberalised, low tax regime - the impetus to avoid taxation is less; and in the zeal to book tax evaders, genuine taxpayers should not suffer. It is in this context that we submit that some of the provisions in GAAR require reconsideration.

We fully endorse the attempt to ensure that tax evaders are strongly dealt with. However, we must also mention that the failure to effectively do so under the present act arises not only due to inadequacy of the law. There is need for serious introspection and for introduction of some mandatory form of accountability in regard to tax administration. It is not enough to enact good laws. It is imperative to see that they are fairly, justly and equitably administered. Just as tax evaders need to be brought to book, accountability in tax administration needs to be institutionalised through a transparent process. We strongly urge that concrete steps in this regard need to be taken in order to demonstrate that the thrust towards improvement in tax laws is not targeted only towards the taxpayer but encompasses all stakeholders in the revenue collection process.

Growth in the Direct Tax Collections - Undisputed need

Undoubtedly, there is a need to continue growth in the collection of direct taxes. But the question is: What should be the approach for achieving the same keeping the long term national interest in mind? It should also be remembered and noted that an exceptional increase in the direct tax collections in the earlier 3-4 years (except in the Financial Year 2008-09) was mainly due to unprecedented boom in the economy and there is, by and large, consensus that such exceptional continuous unprecedented boom rarely gets repeated. Therefore, on such a highly increased base of direct tax collection, it may be too optimistic to expect such continuous trend of increase in tax collection in the present economic scenario. If targets of economic growth are achieved, growth in the collection of direct taxes would be automatic. This is evident by the current year’s trend. Hence, the focus should be on economic growth. In light of this, the provisions giving the government a better locus-standi in regard to international / cross-border taxation and treaty negotiation issues is appreciated. At the same time, we have given in our submissions certain perspectives in regard to CFC provisions which merit consideration from the perspective of India as a growing economic power. We are certain that whilst keeping focus on revenue collection, the impact of the DTC provisions on business confidence and economic environment will also be kept in mind.

The present Income-tax Act has evolved over six decades and all the laws relating to the major areas have been critically examined by the judiciary and have become well-settled. Therefore, it is suggested that the major part of the existing statute, on which the law is almost settled and contentious issues largely resolved , may be retained and necessary

changes may be made only with regard to other part. This will help in avoiding litigation on settled position of law. Perhaps, there is a need to think on this line and the final decision may be taken after considering the long term impact of all the major conceptual changes proposed in the DTC.

Respected Sir

Your views are solicited.

20 per cent and 30 per cent Tax on Income are not advisable, as higher income groups may consider it painful to pay high taxes and there are chances that they may opt to evade taxes in one way or the other.

Well, Income Tax may be considered to be charged at a single flat rate of 10 per cent on total Gross Income as TDS just like a Service Tax only, the minimum.

However, this 10 per cent Income Tax amount on total gross income may be borne by Employer and Employee in the following ratio and amount:

Gross Income	10 % Tax in Rupees (Single Slab 10%)	Ratio Employer : Employee	Tax in Rupees Borne by Employer : Employee
upto 50,000	May be Exempted	For People below poverty Line (PBL)
Upto 1,00,000	10,000	Borne by Employer	10,000 : 0
Upto 2,00,000	20,000	9 : 1	18,000 : 2,000
Upto 3,00,000	30,000	8 : 2	24,000 : 6,000
Upto 4,00,000	40,000	7 : 3	28,000 : 12,000
Upto 5,00,000	50,000	6 : 4	30,000 : 20,000
Upto 6,00,000	60,000	5 : 5	30,000 : 30,000
Upto 7,00,000	70,000	4 : 6	28,000 : 42,000
Upto 8,00,000	80,000	3 : 7	24,000 : 56,000
Upto 9,00,000	90,000	2 : 8	18,000 : 72,000
Upto 10,00,000	1,00,000	1 : 9	10,000 : 90,000
More than 10,00,000		Borne By Employee	Full by Employee

The implementation of the above System of bearing the tax burden both by the Employer and Employees may be considered as an effective tool for reducing the tax liability on employees (individuals) and reduces the chances of evasion of Tax by Employers, as sometimes, employers show inflated/bogus/more salaries in their accounts to reflect less income or profits.

Moreover, Government may consider reduced/lower single slab Income Tax rates i.e. 2 per cent, 4 per cent, 6 per cent and 8 per cent on Total Gross Income upto 50,000, 1,00,000, 1,50,000, 2,00,000 respectively, in the form of TDS for lower income groups, which is to be wholly borne by the Employer, instead of Employee.

However, people below the poverty line may be given exemption of this 10 per cent Tax.

Incomes of All small firms, different businessmen, wholesalers, retailers, Actors, Musicians, etc. may be considered to be charged at a single flat rate of 10 per cent either it is 25 lacs or 50 lacs or more.

Spiritual organizations, Charitable Institutions, Clubs, Welfare Organizations etc. may be considered to be liable to Pay Tax at a single flat rate of 10 per cent on all incomes/donations/receipts.

Incomes from 1. Interest 2. Dividends 3. Short / Long Capital Gain 4. House Property may be considered to be charged at a single flat rate of 10 per cent as TDS just like a Service Tax. However, people below the poverty line may be given exemption of this 10 per cent Tax.

Initially, Income Tax of single flat rate of 10 per cent on total Gross Income as TDS may be considered to be applicable for employees of Government, Public Sector Undertakings and Public Limited Companies. Its scope may be further extended to Private Limited Companies, then small firms, then different businessmen, then wholesalers, then retailers and so on.

Wealth Tax may be considered to be abolished.

STT may be considered to be allowed to be continued and may not be considered to abolish the same.

One new Tax on trading of Shares in the Stock Market may be introduced i.e. 0.001% on delivery and 0.0001% intra-day, which will go into the pockets of individual companies, whose shares have been transacted or traded, proportionately according to their volume of transactions.

When all the incomes are charged at a single flat rate of 10 per cent, then ultimately, the revenue from Income Tax shall definitely be manifold. Then there are chances of less Tax evasion, less burden of filing returns.

All investments and purchases should be free from any compulsion in liberalized economy and as such, all Tax Saving Investment Schemes may be considered to be abolished. People should decide its own priorities for purchases and investments with 90 per cent amount available at its disposal - after paying 10 per cent Income Tax. Then People shall have the option either to invest the savings or purchase some more items/things out of the savings. In both the cases, the Government will earn revenue either in the form of Tax on interests/Dividends or Tax on Excise/Sales Tax.

The implementation of this single flat rate of 10 per cent Tax on Total Gross Income may be considered to be an effective tool for overcoming recession and will definitively increase production, employment opportunities and investments, in addition to reduction of black-money, un-accounted income and tax evasion.

Please acknowledge receipt.

With regards

Bobby