DTC 'No Show' - Over & out?

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So the worst fears of Corporate India and tax professionals have now been confirmed by Finance Minister P.Chidambaram. The Direct Tax Code Bill will not be presented in the last session of the current Parliament, which means that the much debated, revised & re-revised Bill will lapse!

So is it the end of road for DTC which has been in the making for better part of the last decade? A case of so near, yet so far especially since the Standing Committee had cleared the Bill with its suggestions? Can a new Finance Minister succeed in evolving consensus on a new tax code? Or will any attempt at a new tax code be a sheer waste of time, as some tax stalwarts believe? Is there some light at the end of a dark tunnel? 

Mukesh Butani
Partner, BMR Legal
DTC no show was anticipated and in hindsight, it's sensible to defer rather than rush through an important piece of legislation. Though, the bill was adequately debated with benefit of 2 rounds of Finance committee of Parliament, the subordinate legislation was under wraps and given that the size of proposed DTC was pruned, there must be lot in store on rules. More importantly, the silver lining is that the deferral will now afford an opportunity to embrace recommendations of the Tax administrative reforms commission some of which will entail amendments to the law and rules.
Gautam Doshi
Group MD, Reliance Anil Dhirubhai Ambani Group
Most of the material change elements of DTC have already been incorporated in the Income-tax Act. Hence, the non presentation of DTC is a non event. Hopefully any new Finance Minister will take up a more holistic exercise and consider introducing a new DTC which achieves both - clarity and fairness for the Tax Payer and plugging of loopholes for the benefit of Revenue.
Sunil Kapadia
Partner & Tax Leader, EY
It is rightly said that designing a tax system that seeks best practical outcomes for a country involves striking a complex balance among competing considerations. Corporate India was excited that DTC 2010 incorporated many aspects of international best practice, had the potential to achieve the goals of improving the efficiency and equity of India's tax system while providing a stable source of revenue to the Government. However, given that the Bill is unlikely to be tabled in the Parliament, one wonders if it will actually see the light of the day. Also, it is important to keep in mind that quite a few radical changes/ watershed developments which DTC sought to provide are already enacted in the present Income-tax Act, 1961 (say for instance, provisions of GAAR, Indirect transfer provisions, Investment linked incentives, etc). What is missing or yet to be covered are provisions pertaining to CFC and POEM. The good part of DTC 2010 was the wide consultation process initiated by the Government and the recommendations of the Standing Committee of Finance. Hopefully, stakeholders got satisfaction that their point of view was being heard and considered. One hopes that this process continues even with...

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H Padamchand Khincha
Partner, M/s H C Khincha & Co.
Direct Tax Code (“DTC”) was expected to usher in new tax regime by succeeding the old and matured Income-tax Act. “Simplification” was the philosophy which triggered the need for this transition. It appeared to be an attempt to simplify India’s "spaghetti bowl" tax system. The expectation was to reinvent a simple, fair, conducive and enforceable tax law. It was a dream of ‘radical change’ to relieve tax litigants cowering from tax terrorism. Contrary to such wishful thinking, the draft of DTC appeared to only complicate the law further. Outright repeal of any existing tax system is always a challenge. Unless the replacement (new Act) is geared up to plug in the shortfalls, it is not possible to march in the right direction. The draft DTC was suffocated with innumerable definitions; misleading approach; contradicting aspirations and overwhelming additional provisions (to say the least). There appeared to be a sense of ‘rush’ which had set in to embrace the new law. Although ambitious, Finance ministry appeared to be keen like never before. The hasty release of DTC bill was a consequence of such unprecedented hustle. However, the bill which was thrown open...

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Krishan Malhotra
Head – taxation, Amarchand & Mangaldas & Suresh a. shroff & co.
The journey of revamping the Income tax Act by bringing in DTC started in August 2009 with a noble objective of achieving simplification, equity and non-discrimination, stability in the tax regime, introducing moderate levels of taxation and expanding the tax base. DTC was introduced in the Parliament in August 2010 and was referred to the standing committee chaired by Shri Yashwant Sinha. Government received extensive comments from Industry groups and consultants amidst frenzied action amongst stakeholders. DTC was originally proposed to be made effective from the financial year beginning from 1 April 2012. Meanwhile some of the key differentiating aspects of DTC viz. General Anti Avoidance Regulations (‘GAAR’), Advance Pricing Agreements (‘APA’), requirements relating to Tax Residency Certificates (‘TRC’) etc. have already been incorporated in the Income tax Act, whether tax rates ought to be lowered is still subject to policy decision of the Government. While presenting Finance Bill 2013 honorable finance minister again mentioned that DTC shall be reintroduced in winter session of Parliament. However, unfortunately, we now understand that it is unlikely to be passed by the Parliament in present term. In view of the heightened tax litigation, slow growth and high inflation, it is expected that the new...

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TP Ostwal
T.P Ostwal & Associates, Chartered Accountants
DTC no show is a welcome scenario. Anyway there was nothing so great in the DTC which required replacement of existing Income-tax Act fully. No purpose would have been served by replacement except the trouble to the students & the practitioners to relook at the old law & the new, time & again. Some of the important concept from the DTC were already incorporated like GAAR in the IT law. And some of them are pending like CFC. Thin capitalisation which can be brought in under the present Act at any time and this does not require replacement of existing law. It was personal agenda of some people at the helm of affairs to bring radical changes in the Act without any substance which was expected to be derailed any way. The History of our country shows that if any one attempted to bring total charge in Income tax Act 1961, then he himself is changed. DTC was nothing but old wine in new bottle, no doubt it will cause some loss of revenue to the professional practitioners due to the same not coming in. But let me honestly say that this is a great service to...

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Girish Gurnani
GE India
Direct Taxes Code (DTC) was described as taxpayer and investor friendly; in reality none of these labels used for DTC fit the proposed legislation. A closer look revealed that it was an attempt to empower tax administrators with more teeth to counter legitimate planning. Industry has long advocated its preference for ‘certainty’ in tax laws, which does not come by redrafting an incumbent law and unsettling 50 + years of jurisprudence; but by streamlining the tax administration, ushering in accountability and transparency, much of which were not addressed in the DTC and continues to languish. In any event, with provisions like GAAR, tax on indirect transfers etc. already included in the Act, the non- introduction of DTC wouldn’t weigh heavily on the industry either way, say unlike a GST regime which definitely can be a game changer.
N. Venkataraman
Senior Advocate
The tax policy, or for that matter, any policy can pass through only when the polity and governance are smooth. Successive occurrence of issues over a larger spectrum of crisis, economic, social and political in the recent past had taken a heavy toll on too many and too numerous aspects and a small speck of it is the likely lapse of the DTC Bill. A regret over it would have to mean a regret over a larger multitude. In democracy, this is not the first or last casualty but democratic values and ethos have in-built self-regulatory mechanisms to achieve neutrality and success, though not effective and efficient every time. Democratic polity, even while submerged in turbulence will always throw the positive hope and either through chance or effort, would translate into vision. Freedom to speak and comment upon should be exercised, being a core democratic value but freedom to predict is speculative, since each issue is capable of sprouting into a shock or surprise indicative of the fact that the system is kicking still and therefore let us hope things will happen the right way.
Uday Ved
Partner, KPMG
“Indian regulatory scenario is changing in last decade and the Govt embarked on introducing new reforms to make India more attractive for investments. In this light, we have seen New Companies Act to align with governance, auditing and accounting issues. Also there have been proposals to introduce Direct taxes Code and Goods & Services Tax to introduce reforms in direct & indirect taxation. The much awaited DTC (introduced in 2009 and revised in 2010) is now on hold but if one looks at changes in last couple of years, we have seen some of the key changes already introduced in existing Income-tax Act eg introduction of GAAR (though effective date is 2016), indirect transfer, Advance Pricing Agreement, etc. The one major recommendation of DTC was introduction of CFC regime which has rightly been on hold as it may adversely impact India outbound story. I think the process of administration of tax law is more important at this point of time than the change in the law itself – thus nothing much missed due to deferment of DTC at this point of time. The New Govt on power can review the situation and decide way forward. Having said that the process...

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