The long-awaited Direct Tax Code (DTC) that seeks to simplify tax laws by lowering the tax rates and bringing more people and firms within the tax net is slated to come into force from the next financial year, beginning Apr 1, 2012, Finance Minister Pranab Mukherjee said here Wednesday.
"The proposed Direct Tax Code brings together the policy initiatives on the direct taxes and is slated to come into force from the next financial year,” Mukherjee said.
Addressing the 4th "International Tax Dialogue Global Conference", Mukherjee said the proposed reforms were targeted at simplification of tax system and its administration, rationalisation of tax rates and broadening of its base.
He said taxation reforms was at the heart of India's economic reforms and liberalisation that started in early 1990s.
"Tax reforms though gradual have been systemic in scope, particularly when we consider the proposals currently awaiting implementation. The reforms have covered both the direct taxes as well as the indirect taxes," he said.
To reform the direct tax system, the government proposes to replace the archaic Income Tax Act, 1961, with a new legislation called Direct Tax Code.
In a bid to reform the indirect tax system, the government proposes to introduce Goods and Services Tax (GST) that will bring uniformity in tax structure across the country.
Commenting on the current progressive personal income tax system, Mukherjee said it was aimed to reduce inequalities in the society. He said the direct tax revenue has increased ten-fold in the last 14 years. Revenues from direct tax increased from $8.62 billion in 1996-97 to $87 billion in 2010-11.
"More importantly, the composition of our tax revenues has altered significantly in favour of direct taxes which now account for nearly 60 percent of our total tax revenues. We have tried to address the issue of gender inequality and old age vulnerabilities by providing some tax relief to women and old people," he said.
Referring to the menace of tax evasion and black money, Mukherjee said tax evasion undermined the intended benefits of a progressive tax policy. He said the problem was compounded by illicit outflow of money from emerging economies and developing countries.
"Global financial integrity has estimated such annual illicit outflows averaging between $725-810 billion from these countries," he said, adding the Indian government has adopted a five-pronged strategy to deal with these issues.
The strategy include joining the global crusade against black money, creating an appropriate legislation framework, setting up institution for dealing with illicit money, developing systems for implementations, and imparting skill to the manpower for effective action, the finance minister said.