Finance minister Pranab Mukherjee has said, he is in favour of a moderate tax regime for individuals, giving a strong indication that the government may stick to the lower tax slabs proposed in the original draft of the Direct Tax Code (DTC), reports Times of India.
The first draft of the DTC, released in August 2009, had proposed to tax incomes up to Rs 10 lakh per annum at 10%, incomes above Rs 10 lakh and up to Rs 25 lakh at 20% and incomes beyond Rs 25 lakh at 30%.
However, the revised draft released on Tuesday suggested that some tax concessions that were proposed to be done away with might now be retained. This had led to apprehensions that tax slabs too might be changed from the original proposal to make up for potential revenue loss.
However, in an exclusive interview to TOI, the first after the revised DTC was released, the FM said any loss on account of concessions granted in the revised draft of the DTC would be made up through better tax compliance rather than holding them as reasons for raising the tax rates.
This should come as a big relief for the middle class, currently paying 10% tax on incomes up to Rs 5 lakh, 20% between Rs 5 lakh and Rs 8 lakh and 30% beyond that income level.
While refusing to explicitly spell out what the new tax slabs would be, saying we would have to wait for the final Bill to be drafted, Mukherjee added that past experience showed that lowering tax rates increases the actual assessee base and results in growth of revenue.
Mukherjee said: "In the past whenever we have reduced the taxes, we have better compliance. For instance, when Indira Gandhi took over as finance minister from Morarji Desai in the early 1970s, those were the days of high tax regime. The rates were as high as 74%. When I came to the finance ministry in 1974, with C Subramanium as FM, we had reduced taxes for the first time."
"In 1975-76, we reduced the rates a little and the yield was more. In 1976-77, we reduced it further and the result was again encouraging," Mukherjee elaborated. He said though in his second stint in the finance ministry during 1982-84, he could not do much, the real reforms came when Manmohan Singh assumed charge.
The FM, who swears by Chanakya, said: "In 1947-48, when R K Shanmukham Chetty became the first FM of Independent India, we had collected Rs 150 crore as the total income tax. This year, the chairman of the Central Board of Direct Taxes (CBDT) has told me that he will get us Rs 430,000 crore for the fiscal year 2010-11."
The FM said despite recession, the 2009-10 collection was more than the budget target. "We had set a budget target of 3.75 lakh crore and we managed to collect Rs 3.78 lakh crore," he added. "This was despite the fact that we had to make refunds of Rs 57,000 crore."
The government will entertain suggestions on the revised draft of the DTC till June 30 and a Bill will be brought before Parliament in the Monsoon session. Once passed by Parliament, the Act based on the new tax code will replace the 1961 Income Tax Act and will be implemented from April 1, 2011.