Financial Daily from THE HINDU group of publications
Saturday, Apr 13, 2002

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Opinion - Taxation

Needless knottiness

T. N. Pandey

THE one obvious contribution that the Finance Minister, Mr Yashwant Sinha, has made to direct tax laws, especially the Income-Tax Act, through his five consecutive Budgets has been to load the Finance Acts with numerous tax provisions.

Over the past five years, the size of the I-T Act has almost doubled (Table 1) with numerous amendments, additions and substitutions through 432 clauses.

The five Finance Acts — written in long-winding legislative language and spread over 143 closely printed pages — have 48 clauses relating to other direct taxes. Thus, of the 666 clauses introduced in the five years, 480 concern direct taxes — that is, close to 72 per cent (Table 2).

Time and again, talks regarding tax reforms surface. There is unanimity on the issue that the direct tax laws have become quite complicated and cumbersome to comply with and the tax administration, the taxpayers and their advisers face a host of problems.

Owing to these, the cost of compliance has been increasing year after year. But in spite of this, things have not improved.

On the other hand, year after year it has become more complicated, with the proposals getting cleared in Parliament without screening or detailed discussions.

The objective of discussions is to find ways to simplify and rationalise the tax laws, so that it becomes easier both for the taxpayers and the tax administrators. This has not been fulfilled thus far.

While presenting the Budget for 2002-2003, Mr Sinha had said: "In direct taxes, my thrust during the last three years has been on providing stability of tax rates, widening the tax base, rationalising and simplifying the tax laws and giving impetus to economic growth."

But none of the three objectives has been achieved. The imposition of various types of surcharges has resulted in varying tax rates and the tax base has not increased if one considered the number of real taxpayers — that is, excluding assesses who file nil returns under schemes such as one-by-six.

Thus, the introduction of numerous, fundamental amendments in the I-T Act structure through the Finance Acts have not helped? A number of conceptual and drafting errors creep in, especially as the Finance Acts are often drafted in a hurry. The result: Many changes have to be made in the relevant provisions already incorporated in the I-T Act by the Finance Acts.

The Explanatory Memorandum to the Finance Bill, 1999 bears this out: "Extensive amendments were carried out in the Finance Act, 1999 relating to demerger, amalgamation and slump-sale. Some of these provisions are proposed to be rationalised for clarity and to remove implementational difficulties."

The practice of making extensive changes in tax laws through Finance Acts must be stopped. Major changes, if any, may be effected through Amendment Acts after detailed deliberations.

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