FICCI terms new Direct Taxes Code as paradigm shift

The moderation of tax rates, both for individuals and companies are welcome. This would provide an impetus to the growth shoots visible in economy and also ensure greater compliance and increase revenue collections owing to the Laffer Curve effect

CJ: Abu Sheikh

Fri, Aug 14, 2009 16:00:51 IST

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FICCI News :

THE PROPOSED simplified Direct Taxes Code to replace the existing Income Tax and Wealth Tax Acts, will mark a paradigm shift in India’s direct tax regime, which is sorely in need for reform and attempt is to bring it almost on par with what prevails in the rest of the world, according to Federation of Indian Chambers of Commerce and Industry (FICCI).

The moderation of tax rates, both for individuals and companies are welcome. This would not only provide an impetus to the growth shoots visible in the economy but also ensure greater compliance and increase revenue collections owing to the Laffer Curve effect. The removal of Securities Transaction Tax is also a positive move, opined FICCI president Harsh Pati Singhania.

FICCI, however, feels that with the pruning of tax exemptions, the effective tax liability would be higher than the proposed 25 per cent on companies, owing to continuance of the Dividend Distribution Tax (DDT).

The cascading effect of DDT on multi-layered companies should have, at the least, been addressed. Also, instead of abolishing the Minimum Alternative Tax (MAT) , the Code has sought to impose MAT @ 2 per cent on gross assets value, which would mean MAT would be payable by even by loss making companies.

Infrastructure companies with long gestation periods would need to pay MAT even in initial years, with no carry forward facility available now. Asset heavy companies will also be adversely affected by the proposed MAT rate of 2 per cent on the gross asset value in the new MAT regime. Further, the proposal to consider foreign companies as resident even if partly held/managed from India needs to be revisited.

According to the FICCI president, the move to tax contractual savings such as the Public Provident Fund at the time of withdrawal would not be desirable in the absence of social security measures. Besides, the transition to a new exempt-exempt-tax (EET) regime may prove to be an administrative nightmare. Also, doing away with the House Loan interest deduction facility may come in the way of the ‘Aam Adami’ in his quest for affordable dwelling units.

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