Direct Tax Code - Review by a tax payer!

Some Highlights of Draft of new Tax Code proposed in July-August 2009 and what I feel would be better:

Maintains tax exemption at Rs 1.60 lakh income a year: I personally feel that there should be no zero tax limit. Everyone MUST pay tax, however little it be, say 3-5%. If somehow, tax collection cost can be curtailed, then this segment should end up contributing maximum to the coffers of the Taxmen. Imagine, there could easily be 5 Crore people earning an average of around 1 lakh per year. If somehow, tax can be collected from these people (say at a rate of 4% i.e. 4,000 per person) then we end up collecting 20,000 Crore per year.

10% tax on income of Rs 1.6-10 lakh: This is the range within which maximum people change their lifestyle, get financial freedom between the two ends of the spectrum, sensitivity towards paying tax changes altogether -and therefore slab change of tax should appear somewhere here in between, say at around 4-5 lakhs -from a rate of 4$ to around 12-15%, maybe creating two slabs herein.

20% on income over Rs 10 lakh up to Rs 25 lakh: What is the point of imposing a higher slab rate at Rs 25 lakhs in India in current scenario. Most people around this range become comfortable paying tax at any rate -provided it is reasonable (and I personally find a 30% tax rate to be excruciating that too when one is charged with toll taxes, service taxes and sales taxes on almost everything he buys. So typically one ends up paying 30% plus another 10% tax on his income for every rupee spent. So, I suggest hitting the highest tax slab in the middle of this range and that should not be more than 20-25% as one is anyway going to pay tax at every consumption point -especially with GST kicking-in sometime soon.

30% on income beyond Rs 25 lakh : Maybe idea behind bringing in a higher rate was to bring in a long-term vision. But this could be done by linking the tax slabs to a CPI or WPI with rounding-off rules. Ths itself should shave-off a couple of Crores from expenditure which the MoF (or perhaps some other Ministry) would spend on an average on each Budget item.

All direct taxes including FBT and income tax would be brought under one code: Am foxed on this one as I don't understand legality of the same. FBT is already out and perks tax is back. I was all for FBT as it legalised individual tax saving by providing a lower tax rate on an individual's exemption which'd now be taxed (any allowances not being under tax net should soon come under it

Corporate Tax rate to be 25% against 30 per cent: WHY? I mean why a lower tax rate for Corporate and not for individuals. And Corporate are anyway eligible for all expenditures unlike an individual who doesn't even get more than Rs. 800 for conveyance and 1250 for medical with almost nothing for food (unless its Sodexho etc which you don't use for your daily meals usually). And also, when it is amply clear that small businessmen would never want to pay such a high tax rate then why not create slabs here too like zero or upto 5% tax rate (I am never for zero though) for businesses with turover upto 1-5 Crores, a higher rate for businesses with turnover upto 25-50 crore and so on (Laffer was not laughing when he proposed intermediate rates efect on compliance). I am sure, small busineesmen would love to pay tax and get away with Democle's sword hanging upon them all the time.

Wealth Tax to be levied on wealth over Rs 50 crore: Again, a very futuristic feature. At 1 Crore, people don't mind taxes (rhetoric: provided they are reasonable)

Abolition of Securities Transaction Tax: So that the Rich don't become poor? or to make a rickshaw-wala spend his day at some stock exchange instead of going to earn. A totally lobbied move. I am a big time punter yet would never say yes to abolition of tax on securities trading. Because this is done by typically rich people -who have time and energy or resources to devote more resources intot rading. A low rate would surely promote volumes and increase tax too but why "Zero". Talk about multiples of a low fee income per transaction and watch it grow.

Re-introduction of long-term capital gains tax: The only thing which provides stability to a nation's income is long-term investments -be it into real estate or insurance or PPF. Once again, totally out of sync. Abolishing tax on security trading and introducing tax on long-term investments. Promote speculation and ruin investment habit. Follow the west and doom before you bloom. Wouldn't say more on this.

Raising of tax deduction on savings to Rs 3 lakh: Somehow, something sagacious here. Need of the hour is medium to long-term savings. Average Indian is still poor by international standards and therefore needs to dip into his savings every once in a while be it for a marriage, education, big investment (say a car or a house etc) and a tax break on 3-5 year horizon investment product provides him incentive to save and add to GOOD consumption in economy. An EEE regime would add strength to it. If you can remove tax on securities trading then why not continue with EEE regime (i.e. tax Exempt at the time of investing, earning/accumulation and withdrawal stage hence 3 times E).

Would love to discuss more...maybe I will.