Rationalization and simplification of the tax regime to remove uncertainty and create investor confidence

By: Himanshu Gulati

In March 2017, Parliament passed Goods & Services Tax Bill (GST) to create a hassle-free environment and boost up the investor’s confidence. The bill has been given assent by the president & was rolled out in July,2017.

Audit of GST was expected to be presented in Winter Session of Parliament, 2019. No report has been found on Comptroller and Auditor General (CAG) of India  website. CAG is the auditing body for GST as mentioned in journal on its website.

CAG has found critical deficiencies in Cess utilisation, as reported by Hindustan Times dated February 18, 2019. Major observations of the CAG Audit:

–Major cess that were subsumed under Goods and Services Tax (GST) w.e.f 01 July 2017 are Krishi Kalyan Cess, Swachh Bharat Cess, Clean Energy Cess and Cess on Tea, Sugar and Jute etc. However, six Cess continue to be levied. Note: A cess is a tax on a tax and usually levied for a specific purpose. And unlike other taxes that have to be shared with the states, the Centre gets to keep the entire amount raised by cess

–CAG noted irregularity in transferring of money to the dedicated account, highlighting Central Government retained even the States’ share of taxes.

A parliamentary panel said in December, 2018, that against a total amount of Rs 86,440 crore cess collected till the end of 2017-18, only Rs 29,645 crore (34%) was transferred to the fund.

In November 2017, CBDT set up a task force to recommend measures to simplify the income tax structures. The current term of the task force expired on February 28, 2019 and the panel under Central Board of Direct Taxes (CBDT) sought an extension of 3 Months citing operational reasons and requirements to firm up a final report.

First introduced to the parliament in 2010, Direct Tax Code (DTC) has not been tabled yet during the current government tenure. Parliamentary Panel asks government to finalise it.The DTC was supposed to replace the Income Tax Act of 1961 and codify the income tax and other direct taxes.

Implementation of the General Anti-Avoidance Rule (GAAR), a proposal of UPA government was getting delayed due to apprehensions on part of foreign investors. Following consultations, the Ministry of Finance operationalised the GAAR provisions with effect from 1st April 2017.

Contrary to the expectations of Minimum Alternative Tax (MAT) removal by industries, government says that it is not practical. However, Government has extended the period of time upto which it can be carried forward upto 15 years. It will enable companies to off-set their future tax liabilities.

Considering the Direct Tax Code Bill was not tabled by the BJP government, and the deficiencies in the collection and allocation of the Cess, the performance of the BJP government against this promise is considered “Inadequate”

(Minimum Alternative Tax is a tax to felicitate taxation of those companies which show zero or negligible income to avoid tax)