Cabinet likely to overhaul direct tax law

The cabinet is expected to approve a bill to simplify archaic direct tax laws on Thursday, a finance ministry official said, a key piece of reform aimed at widening the tax net and increasing state revenues.

Once the cabinet clears the direct taxes code bill, the government will seek approval next week from parliament where the measure enjoys broad political support. The proposed tax reform will cut tax rates to bring in more people and companies under the net, phase out profit-linked exemptions for firms and replace them with investment-linked incentives -- all effectively raising government revenues.

"The government intends to move it in parliament next week, so we have put it up for cabinet approval," the official who spoke on condition of anonymity said. "We would expect cabinet approval today." Complex laws and procedures have led to litigations, encouraged large-scale evasion and prevented the cash-strapped government to shore up revenues in a country of 1.1 billion-plus people.

The fate of the direct tax bill, which is expected to get a legislative nod before recess begins on Tuesday, contrasts with that of efforts to bring in a nationwide Goods and Services Tax (GST), both of which were set to be implemented from April 1. The GST, India's most ambitious indirect tax reform, has been grounded on political and states' opposition and analysts warn the deadline may be missed as negotiations drag on.

The main opposition Bharatiya Janata Party and some states have opposed the ruling Congress party led coalition's efforts to usher in GST, as they fear states will lose revenues. Supporters say the GST would boost the economy by cutting business costs and increasing tax collections.
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Source - EconomicTimes