Governance Now Visionary Talks Series

BJP opposes Direct Tax Code

Says it will impose a higher tax regime on smaller assessees

GN Bureau | February 3, 2010



The Bhartiya Janata Party is not in favour of the Direct Tax Code (DTC) proposed to replace the Income Tax Act. It urged the UPA government not to hurl the taxpayers from the frying pan to the fire by making sweeping changes.

Its worry is, the small assessees constituting 90 percent of individual taxpayers will end up paying more taxes and the tax officials will get arbitrary powers that may lead to abuse of power and harassment. It called for bringing down the highest tax rate for all individuals, firms and companies from 30 to 25 per cent.

A detailed memorandum submitted by the BJP leaders to Finance Minister Pranab Mukherjee on Tuesday was based on wide internal discussions in the party as also with various stakeholders. It accused the government aping the western and developed economies, ignoring the fact that India was a developing country and the basic philosophy of the code ran counter to its own core values--social, political and cultural.

"In one stroke, some of the fundamental principles, which constitute the core of our current taxation policy and have stood the test of time have been jettisoned" by discouraging savings and capital formation that are so important for social security in view of India having no state-sponsored social security system alike the western countries",the memorandum asserted.

"Another very disturbing and disquieting feature in DTC is the rather thinly veiled attempt to destroy the charitable and religious institutions playing a stellar role in promoting education, health and other social welfare activities," the BJP said, opposing the ground shift in taxing them as "a Machiavellian first step towards reckless commercialisation of education and health, for which these institutions are perceived to be road blocks."

Pressing for continuing current exemption to religious trusts, the party opposed exemption limited to only those trusts or institutions that are registered with government under the religious endowment acts and denying tax deduction to donors of such bodies. A large number of trusts that are not registered under these acts will have to apply for registration which may or may not be granted and may be used as a backhand move to seize control of these institutions, the party leaders asserted.

Pointing out adverse impact on small and middle income taxpayers, the party said the code painted a picture of lower taxes for all, but in practice they will end up paying more because of withdrawal of tax incentives to savings and withdrawal of the fringe benefit tax.

Seeking changes in the tax structure to ensure the small and middle income groups are not adversely hit, the party sought the minimum exemption limit raised to Rs 3 lakh and that for women and senior citizens up to Rs 3.50 lakh and Rs 4 lakh, respectively. It also demanded that valuation of perquisites be rationalised by dropping the proposal to tax leave travel concession and leave salary and levying no tax on reimbursement of expenses.

As regards implications for government employees, it said "the code suffers from the mindset 'one size fits all' by proposing valuation of perquisites such as housing, conveyance etc at market rates. Present taxation norms for government employees need not be disturbed, it stressed.

They stressed on not discontinuing incentives to taxpayers to own or invest in house in order to maintain a sustained fillip to the housing sector and enlarge the scope for even smaller players to invest in housing projects.

Their memorandum also urged Mukherjee to desist from taxing pension, savings in provident fund and life insurance policies to let individuals build their own safety net as the state did not have one unlike the western countries.

Turning to small and medium entrepreneurs, the memorandum says the presumptive tax of 8 per cent on turnover on businesses having turnover up to Rs 1 crore is excessive and need revised to a lower rate by taking a more realistic view. The code exempts them from maintaining regular books of accounts, but they will be compelled to maintain them to justify their turnover is actually below Rs 1 crore.

Opposition leaders in parliament, Sushma Swaraj and Arun Jaitley, led the BJP delegation to the finance minister.

 

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