A new Income Tax Act

Why in news?

The Indian government has constituted a task force for overhauling its existing ‘Income Tax Act, 1961’ to make it consonant with the present economic needs.

What it the mandates for the task force?

• The country needs to widen its tax base, since the number of taxpayers is still low when compared to the overall population.
• Hence, the task force has been mandated to prepare a suitable ‘draft direct tax legislation’ and submit its report to the government within six months.
• It is expected to study direct tax systems prevalent in various countries, international best practices and the country’s economic needs.
• The broad idea till now is to establish moderate tax rates and also reduce the number of tax exemptions that are presently available.
• The envisioned draft is also intended to ensure simplicity and clarity to reduce litigation and provide stability to local as well as global business.

What are the concerns?

• The government has already taken several steps in line with Direct Tax Code, 2010 (DTC) under the Income Tax Act.
• Eliminating the Minimum Alternate Tax (MAT), which most countries have already done away with, is also being considered but there isn’t consensus.
• The new law should be in sync with India’s bilateral tax treaties and should be conducive for foreign investments.  
• There are reservations against the 2017 update to the “OECD Model Tax Convention and Commentary” is not in line with international best practices.
• It would be challenging to draft an entirely new income tax law in such a short time of 6 months, as broad stakeholder consultations are required.

How does the future look?

• The new committee should involve all stakeholders and should give the rationale of each provision clearly before finalising its draft.
• As India wants to become a manufacturing hub, it important to critically analyse the effectiveness of corporate tax cuts on the fiscal and the economy.
• Also, to avoid long-drawn-out litigation, it should be ensured that the proposed law is legally compliant and its administration is smooth.

Source: Business Standard