In November 2017, the central government had formed a task force to create a new Direct Tax law which seeks to replace the present Income Tax Act, 1961. The Task Force will submit its report to the government on how to fix the more-than-50-year-old Income Tax Act, 1961.
Direct tax contributes to a significant portion of the government’s revenue. However, with the growing economic crisis due to the coronavirus outbreak, the government was forced to ease tax burdens on individuals. The Income Tax department has set its budgetary direct tax collection target for 2020-21 at Rs.13.19 lakh crore, 28% higher than the actual collection in the last fiscal, which ended on May 31, with a huge reliance on Vivad se Vishwas scheme that provides for a direct tax dispute resolution mechanism. Yet, this novel scheme is also facing challenges due to the pandemic. It is necessary to ease pressure on taxpayers to increase spending and promote new businesses, while also ensuring necessary revenue sources for the government.
The recent report of the Union comptroller and auditor general (CAG) on the goods and services tax (GST) does praise its rollout as a landmark achievement. Notably, the revenue obtained from the GST in July 2019 stood at Rs.1.02 lakh crore. This is a 5.8% hike when compared to the GST revenue collected during the same month last year. However, the CAG also points out several deficiencies in its implementation.
The digital tax issue has been a source of contention between the USA and France for a while now. Meanwhile, India has gone ahead to set up a taxation framework on a transaction basis. Recently, it expanded the tax regime to include a wider range of digital activities, seeking to improve revenue inflow. This comes in times of the economic slowdown draining the coffers of the government.