NBR to prepare new income tax law, not direct tax code

Government's revenue authority has decided to transform the draft 'direct tax code' into a new income tax law with necessary changes to make it fit in the country's socioeconomic context.
Officials said the decision came after the National Board of Revenue (NBR) had found the draft of the code, prepared by the International Finance Corporation (IFC), too complex for both taxpayers and taxmen to adapt to.
The 'direct tax code' was scheduled to be passed by parliament in 2016-17 to replace the existing income tax Ordinance 1984.
But, later on, the NBR rescheduled the enactment for next fiscal year (2017-18) to avert a logjam as the Value Added Tax and Supplementary Duty Act 2012 will be enforced from July 1, 2016.
Officials said implementation of two major laws at a time may leave negative impact on revenue collection.   
A senior official of the NBR said the drafting of the new income tax act is expected to be completed by December 31, 2016.
"The new income tax act is likely to come into force from July 1, 2017," he said.
In the meantime, the revenue board has formed three committees for monitoring, advisory and drafting- implementation work on the new income tax act.
"The board will soon form a committee for drafting the new act through the incorporation of positive elements of the existing income tax ordinance 1984 and the draft direct tax code into it," the official said.
For having a flawless tax law in place, the drafting of the act will be outsourced to local consultants, legislative experts and other technical persons.
The law will be in Bengali in line with the directive of the High Court (HC). The existing income tax ordinance 1984 will be transformed into income tax act 2016 or 2017.
The NBR will go for evolutionary change with the income tax law, not revolutionary change, he said.
In the draft direct tax code, there are three parts -- income tax law, gift tax law and wealth tax law.
"The government doesn't want to launch wealth tax act just now as surcharge on wealth is in the existing income tax ordinance," he said.
The NBR needs to develop capacity and set up separate valuation department to enforce the wealth tax act, the official said.
"The draft direct tax code also incorporated a provision under which companies' net asset would be taxable. The provision may also create problem," he added.
There are seven sources of income or income head in the existing income tax ordinance that the direct tax code cut to two.
There are 54 sources from where the government receives tax at source. The direct tax code proposes to slash it to seven or eight. Reduction in the sources may cast negative impact on government revenue collection.
"It is not possible to overhaul the existing law as that will leave impact on revenue earning," the official said.
An income tax official said the new income tax act would not undergo massive structural changes. Positive sides of the existing ordinance and direct tax code will be incorporated into the new law by the experts.
"It is not that our law is too old. It is framed in 1984 whereas income tax law in India drafted in 1961 while in Singapore in 47," he noted.
The law will be just updated with the digitization, international taxation issue and fiscal diversity, he said.
A law becomes lost in terms of its internal coherence with several changes and amendments made every year. It needs updating for easy implementation.
Through several consultations and inter-ministerial meetings with the stakeholders, the NBR did not get any positive response from them on implementation of the direct tax code.
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