Replacing Income Tax Law with Direct Tax Code: Chidambaram to Rajya Sabha


During the debate on the Finance Bill as well as the Appropriation Bill in the Rajya Sabha on Monday, former Finance Minister P Chidambaram said that the Income Tax Act should be replaced by the code of direct taxes, while seeking to know from the Minister of Finance Nirmala Sitharaman “why 39 of the amendments were necessary in the finance bill”.

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“The Finance Bill has 125 clauses, 84 of which relate to amendments to the Income Tax Law, and the Minister of Finance has proposed 39 amendments to the 125 clauses of the Amendment Bill,” said Chidambaram, adding that even after careful reading, he did not understand the amendments.

“It’s a legacy issue…it goes on year after year, but it has to stop. This government claims it’s going to get rid of all the old legacies. It’s a legacy that this government needs to get rid of immediately, and i think the whole income tax law needs to be replaced by a direct tax code.When we were in government, I helped draft a direct tax code when Pranab Mukherjee tried to improve it. When I returned to the Ministry of Finance, I tried to improve it. There are three versions of the Direct Tax Code. Many provisions will be outdated. So get rid of all of them, but please bring a direct tax code immediately,’ he added.

Chidambaram also raised the issue of charitable income tax, saying that most trusts and charities in the country “are crippled by these provisions and the changes repeated year after year”, suggesting instead that they are allowed to operate “to a reasonable degree”. independence and light regulation”.

Chidambaram further called the concept of “faceless assessment” introduced by the government a “regressive” measure. The former finance minister said many of the amendments that had been made were not only large but also complex – a “minefield” that would increase hardship for the people.

Speaking on the Appropriation Bill, he said that from 2009-10 the policies put in place resulted in direct tax revenue as a share of GDP, exceeding indirect tax revenue for the first time in 2013. -2014. When the BJP government took power, direct taxes accounted for 5.6% of GDP and indirect taxes 4.4% of GDP.

“It’s progressive taxation: direct taxes, as a proportion of GDP, increase and indirect taxes, as a proportion of GDP, decrease. This is the right direction. Indirect taxes as a proportion of GDP should not overlap direct taxes. Direct taxes must increase. In 2021-22, the two became equal – 5.4%. Next year, the finance minister expects direct taxes to drop from 5.4% to 5.5% and indirect taxes, as a share of GDP, to fall from 5.4% to 5.2% , which means we are reversing the bad trend … but the total of indirect taxes and direct taxes reached 11.2% in 2017-2018. This year it is 10.8% and next year it will drop to 10.7%. If your total tax as a proportion of GDP goes down 0.4% or 0.5%, there is something wrong with your tax policies and your tax administration,” he said, adding that “this trend indicates that people accumulate income and wealth and do not pay enough taxes, while the great mass of people, who pay indirect taxes, bear the bulk of the burden”.

“The burden must be shared fairly. People have to pay taxes, but the rich have to pay more; people who accumulate wealth have to pay more,” he said.

He further asked Sitharaman whether the projected 11.2% growth announced in February this year had been reassessed in light of the war in Ukraine. “Supply chains have been stifled. Shipping rates have increased astronomically. There is a shortage of tokens. There is a shortage of containers. There is a shortage of credit. World trade will be affected. In fact, the IMF estimated that each country’s GDP would decline by 0.5% to 2%. Now, given all of these developments over the past eight weeks, are you still confident that “nominal GDP” will indeed grow by 11.2%? he asked.

Chidambaram further questioned the government’s GDP growth projection – three figures that had been released – 9.5% which was revised to 9% and then 8% – “I think one of those three numbers is no longer credible,” he said. .

He further contradicted Sitharaman’s statement that capital expenditure will be the main driver of growth, saying that private investment is the main driver, including household savings. He also questioned the figures released by the Ministry of Finance, saying that in 2021-2022, central government capital expenditure in the revised estimates was Rs 6,02,711 crore, but in fact Rs 51,971 crore. Rs were repayment of Air India debt, which could not be counted as capital expenditure.

He further said that Sitharaman was planning a capital expenditure of Rs 7,50,246 crore, an increase of 35%, which “is not a correct figure”.

“Have you included Rs 7,50,246 crore in the Rs 1-lakh crore you will allow states to borrow additionally for capital expenditure? If you included that (Rs 1-lakh crore) then it will be counted as capital expenditure by states if they borrow it and show it in their budgets,’ he said.

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