In this Mint article, Niranjan Rajadhyaksha looks at the core principles of the direct tax code (DTC) and its evolution vis-a-vis the goods and services tax (GST). Excerpts:
"The task force on the direct tax code (DTC) submitted its final report to finance minister Nirmala Sitharaman earlier this month. That is almost exactly a decade after a draft DTC was released for public debate in August 2009. The proposed new code will replace the Income-tax Act of 1961 that has been mangled beyond repair by frequent revisions.
One of the most under-appreciated public policy lessons is to be found on page 17 of the September 2018 report submitted by the task force on direct taxes. It is the principle that policymakers have to think of the tax system as a whole, rather than obsessively focus on each part separately. What matters is how it all adds up. This was the fundamental flaw in the GST negotiations. The idea that each tax has to be progressive—that milk and Mercedes cannot be taxed at the same rate—has led to a complicated GST that is now resulting in suboptimal revenue. The government should think of the progressive element of the tax system as a whole."
Read the full article here.