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The new income tax code is here

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"Make everything as simple as possible, but not simpler."  - Albert Einstein

 

The finance minister has released the draft tax code as promised.

It is radical!

Apart from drastic cuts in IT rates, it vastly simplifies the rules. Chidambaram hit the nail on the head when he explained, "The code (Income Tax Act, 1961), in fact, became a virtual happy hunting ground for lawyers. If anyone was happy with the (existing) code it was legal fraternity." ...and payroll software vendors. 

Good payroll software was a must to slay the beast of complex tax rules. The annual tweaks helped a lot to ensure ongoing upgrades...

Does it make people like us insecure?

Not really. For three reasons. One, HR and payroll software is much more than mere statutory compliance.

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courtesy George Hart

The second reason is interesting. It's taken nearly 50 years to revise the tax laws and the next one is mostly decades away. Unless future finance ministers display good sense and resist the urge to pile on exemptions and special provisions every year, you will still end up in a mess.

It's like software development. You start off with a simple system. As requirements evolve, the code base grows. Programmers come and go. The software quality deteriorates.  Soon, no one can understand the logic, brittle, and unstable. It's time to throw it away and start afresh.

A metric called McCabe cyclomatic complexity is used to measure the complexity of code. It has been shown that there is a strong positive correlation between cyclomatic complexity and defects.

There are many ways to tackle this problem in software. One of the most powerful methods it to keep refactor the code on a regular basis.  So, the finance minister in charge needs to have the big picture in mind when proposing tax changes instead of being myopic. Every new proposal has to be seen in the light of how it impacts the overall tax code and if it's leading to complications.

Final reason: while the tax laws may be getting simpler, the tax filing is getting trickier and sophisticated. We bet you will need payroll software even more to manage and keep track of all those UTN numbers...

Petty self-interest aside, three cheers for the new tax code because it embraces simplicity and we love simplicity.

Bravo, Mr. Finance Minister!

 

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