Replace Income Tax Act with Direct Taxes Code: Chidambaram in RS

“The Finance Bill has 125 Clauses, of which 84 pertain to amendments to the Income Tax Act, and the Finance Minister has moved 39 Amendments to the 125 Clauses in the Amendment Bill,’’ said Chidambaram, adding that even after careful perusal, he did not understand the amendments.

“This is a legacy issue…this has been going on year after year after year, but this must stop. This government claims that it will dump all old legacies. This is one legacy this government must dump immediately, and I think, the entire Income Tax Act must be replaced by a Direct Taxes Code. When we were in government, I have helped draft a Direct Taxes Code when Pranab Mukherjee tried to improve it. When I returned to the Finance Ministry, I tried to improve it. There are three versions of the Direct Taxes Code. Many of the provisions will be outdated. So, get rid of all of them, but please bring a Direct Taxes Code immediately,’ ’he added.

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

Chidambaram further called the concept of ‘faceless assessment’ introduced by the government a “regressive” move. The former finance minister said many of the amendments that had been brought in were not only voluminous but also complex – a “minefield’’ that would increase the hardships of the people.

Speaking on the Appropriation Bill, he said that from 2009-10, the policies that had been brought in resulted in direct tax revenue as a proportion of the GDP, exceeding indirect tax revenue for the first time in 2013-14. When the BJP government took over, direct taxes were 5.6 per cent of the GDP and indirect taxes were 4.4 per cent of the GDP.

“This is progressive taxation: direct tax, as a proportion of GDP, increases and indirect tax, as a proportion of GDP, decreases. This is the right direction. Indirect taxes as a proportion of GDP should not cross direct taxes. Direct taxes must increase. In 2021-22, both have become equal — 5.4 per cent. Next year, the Finance Minister expects that direct taxes will go up from 5.4 to 5.5 per cent and indirect taxes, as a proportion of GDP, will come down from 5.4 per cent to 5.2 per cent, which means, we are reversing the bad trend…but, total indirect taxes and direct taxes touched 11.2 per cent in 2017-18. This year, it is 10.8 per cent, and next year, it will come down to 10.7 per cent. If your total tax, as a proportion of GDP, falls by as much as 0.4 per cent or 0.5 per cent, there is something seriously wrong with your tax policies and tax administration,’’ he said. He added “this trend indicates that people are accumulating income and wealth and not paying enough taxes, whereas the large mass of people, who pay indirect taxes, are bearing the bulk of the burden’’.

“The burden must be shared equitably. People must pay taxes, but… the people who accumulate wealth must pay more,’’ he said.

He further questioned 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 choked… World trade will be affected. In fact, the IMF has estimated that the GDP of every country will be down by 0.5 per cent to 2 per cent.,” he said.