Replace Income Tax Act with Direct Taxes Code: Chidambaram in Rajya Sabha

During the debate on 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 must be replaced by Direct Taxes Code, while seeking to know from Finance Minister Nirmala Sitharaman “why 39 amendments were required in the Finance Bill “.

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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 Many of the provisions will be outdated.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 that 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 GDP and indirect taxes were 4.4 per cent of 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, adding that “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 rich must pay more; 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. The shipping rates have gone up astronomically. There is chip shortage. There is shortage of containers. There is shortage of credit. 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. Now, given all these developments in the last eight weeks, are you still confident that ‘nominal GDP’ will indeed grow by 11.2 per cent? ” He asked.

Chidambaram further questioned the government’s projection in growth of GDP – three figures that had been put out – 9.5% which was revised to 9% and then 8% – “I think, any of these 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 figures put out by the Finance Ministry, saying that in 2021-22, the central government’s capital expenditure in the Revised Estimates was Rs 6,02,711 crore, but actually Rs 51,971 crore was repayment of debt for Air India, which could not be counted as capital expenditure.

He further said that Sitharaman projected a capital expenditure of Rs 7,50,246 crore, an increase of 35 per cent, which “is not a correct number”.

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


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