Has government compromised too much on DTC Bill?

The Union Cabinet on Thursday okayed direct tax code bill, which is aimed at simplifying the country's archaic direct tax laws. CNBC-TV18 News Editor, Harsha Subramaniam quizzed M Lakshminarayanan (Tax Leader at Deloitte Haskins & Sells) about the compromises made by the government in the original direct tax code (DTC) proposed in 2009. He also spoke about possible implications on investors and corporates alike.

Here is the verbatim transcript of the interview. Also watch the accompanying video.

M Lakshminarayanan, Tax Leader , Deloitte Haskins & Sells

Excerpts from India Business Hour on CNBC-TV18 Watch the full show »

Q: Do you also believe that the minimum alternate tax (MAT) at 20% is a dampener and broadly will you look at the kind of changes that have been suggested today? Do you believe that these are just minor tweaking here and there and it has not been a dramatic overhaul?

A: To give credit to the finance minister, he has reduced the tax rates compared to the current rates, but if you look at the rates which were originally proposed in the DTC, we are far away from that. Considering the fact that they are going to levy 20% MAT, it is almost near the rate of 30% applicable to the corporate sector.

You should also consider that today although the tax rate is around 33%, some of the studies have revealed that the effective tax rates paid by various corporates is only in the region of 20-22% considering various exemptions and tax holidays available. To compare with that rate 30% is steep and 20% MAT would definitely be a dampener.

Q: Was there anything that you were expecting that has not happened in the announcements and do you think the government has taken the softer route?

A: It is actually a compromise between the original direct tax code which was released in August 2009 and the current one. They have gone on a softer note and we are probably seeing all those problems which are applicable in the income tax act today coming back in the DTC in one manner or other, including the rate of tax of 30% which is already there in the income tax act today for corporate.

It is actually a softer route which probably the finance minister has taken, because to the lot of objections he has received on the original direct tax code which was published.