India Direct-Tax Law May Be Revised .

NEW DELHI—A proposed direct-tax law that India is framing may require a fresh look, Finance Minister P. Chidambaram said Tuesday, indicating more modifications that could delay the implementation of the new rules.

The Direct Tax Code, which aims to simplify tax procedures and improve compliance, was placed in parliament more than a year ago, and the government had earlier said it would implement it on April 1, 2013. However, lawmakers haven't yet approved the tax code, which has undergone several changes.

Mr. Chidambaram also said tax laws needed to be friendly but firm. "We are not going to be regarded as a hounding tax administration," he told reporters after a meeting with tax officials.

The minister's comments come in the backdrop of recent controversies over his predecessor's tax proposals that critics have said could scare away foreign investors.

Pranab Mukherjee, who resigned as finance minister in June and successfully contested India's presidential election, in March proposed to retrospectively tax overseas deals involving Indian assets. He also proposed General Anti-Avoidance Rules, or GAAR, that would give authorities the power to scrutinize any transactions that they feel were structured to avoid tax.

Heavy criticism of these rules forced the government to defer the implementation of GAAR by a year to April 1, 2013.

Mr. Chidambaram said the government will be able to achieve its indirect tax revenue target of 5.05 trillion rupees ($90.7 billion) for the current fiscal year that began April 1.

Meeting the target is crucial for the government, which is struggling to control its fiscal deficit as heavy spending is straining its finances. Weakening tax revenue amid a sharp slowdown in the economy has put further stress on the government's financial health.

Authorities will also begin a campaign to improve compliance to tax laws and widen the service tax net, Mr. Chidambaram said.

India has 1.6 million service tax assessees, but just 600,000 pay the tax, reflecting weak compliance and in some case lack of awareness about the rules.

Starting this fiscal year, the government has shifted to a new service tax regime wherein all services, except those specified by it, will be liable to tax. This is a reversal from the previous regime when tax liability arose only on services notified by the government while all other services were exempt.

Source : online.wsj.com