Tax Reactions

what is the reaction of the business community to the proposed changes in the Income Tax Act? Participating in an opinion poll conducted by Business Age, businesspersons of the country expressed skepticism about the proposals.

Perhaps it is an example of putting the cart before the horse. Some of the proposals of the draft Income Tax Act have already been implemented through the Finance Bill enacted from this fiscal year. Still the government has not finalized the new Income Tax Act that the Finance Minister had promised to present to the parliament in the recently concluded budget session.

The reason for the delay is said to be the good intention of the government to incorporate into the draft the suggestions of the business community. But if the government really wants to make the law tolerable for the business community, it has to rewrite it all over again as can be seen from an opinion poll conducted by Business Age.

One very important provision being introduced in the draft Income Tax Act is to tax capital gains. Over 67% of the respondents in the opinion poll viewed the proposal as a "negative" step. While the expectation of the business community was a law that ensures more transparency in tax dealings, the draft Act is viewed by the respondents as rather increasing, or leaving unchanged, the discretionary powers of the tax authorities.

The respondents view as "logical" the proposal to tax some additional types of income (irrespective of the source), but they also say that only some of the additional types of income are logical to be taxed. They are skeptical of the provision, which says that expenses incurred in earning the income are deductible. Though tax experts regard such provision as progressive, the businesspersons are skeptical because the expenses are not defined. At present, the deductible expenses are defined, still the businesspersons have to go through an ordeal to convince the tax authorities that the expenses are real. If the expenses are not defined, it will give more discretionary power in the hands of the tax authorities, it is feared.

The proposed law says that in case of self-assessment of tax, the authorities may decide, as late as four years, to check the accounts of the tax-payer. "Better to have the assessment made from the authorities than self-assessment with such a condition that keeps dangling as a sword above your head for so long", said one respondent commenting on the provision.

6. The draft act gives right to the tax authority to make correction in the tax returns for schemes targeted to minimize the taxable income or payable tax. How do you view this?