No DTC ticket

The Direct Tax Code Bill has been tabled in Parliament. There was already a sense that it would be something of a missed opportunity. Yet,now that full details are available,it is dazzlingly clear that it is a mere sleight of hand: it simply does not do what it said on the box. It does not radically simplify; it does not really close loopholes. It is — without exaggeration — a betrayal of the promise that a direct tax code was supposed to embody. The DTC was imagined as a fundamental reworking of how we pay our taxes,as individuals and corporations. We were to have been given a system in which we would close loopholes,the ones that keep people working at tax time trying to get the best deal; in which we would end uneconomic exemptions and “incentives”,the ones that cause lobbyists to beat a path to the anterooms of finance ministry babus.

Instead,we have been given lazy tinkering,of the sort not out of place in a ’60s budget. We are told that “industry” is “happy”. Naturally,if “happy” means “willing to work with business as-usual”. The grand bargain that was proposed was that the tax process would be streamlined,the lobbying and pleading for government favour would end — and that would pay for the general tax rate being reduced to 25 per cent. That bargain has not been made. Incentives,such as for SEZs,have been grandfathered in. The system by which capital gains are to be taxed manages to be more opaque than it was to start off with. The fact that clarity was not put front-and-centre is made even more obvious by the fact that the new DTC is actually longer than the Income Tax Act it is supposed to replace. And,for individuals,the retirement savings regime continues to incentivise finding exemptions to take advantage of.

One begins to wonder: is this government serious about reforming revenue? The bargain that GST embodied — which would enhance growth substantially — wasn’t made either. And Monday’s Foreign Trade Policy review demonstrated that we haven’t made the slightest effort to shrug off the “sops for exporters” culture. Put together with the abandonment of the DTC revolution,one begins to wonder what it will take for UPA-II to put in the spadework that fiscal reform requires.