India unveiled the new draft Direct Tax Code ("the Code") in August for public consultation. As per the current timeline table, the draft Code is proposed to be discussed during the winter session of Parliament and is expected to come into force from April 1, 2011. The much awaited Code aims to consolidate and amend the law relating to all Indian direct taxes and pave the way for a single unified taxpayer reporting system. The intent of the Code is to address the twin goals of rationalisation of tax rates and expansion of the tax base. The Code proposes a cut in the corporate tax rate from 30% to 25%, as well as reducing the number of tax exemptions and holidays currently available. New transfer pricing polices including the introduction of an advanced pricing agreement programme seem on the anvil.
When enacted in its final form, the Code will replace the Indian Income Tax Act, 1961. The endeavour of the revenue authorities has been to keep the language of the Code simple in order to reduce the scope of litigation and provide flexibility and stability in line with accepted international best practices. While the draft Code has evoked mixed reactions so far, it is yet to be seen how the draft Code shapes up eventually when it passes through legislative scrutiny in Parliament!
Legislators would be well advised to bear in mind that "taxation is akin to plucking a goose and the art of taxation is to ensure the maximum number of feathers with the minimum amount of hissing!"
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