Finance Bill: govt overreach that sets bad precedent

The Finance Bill 2017 that has been passed by the Lok Sabha has a number of amendments that have led to debate and discussion in the media and the public. This Bill is usually what is known as a Money Bill, and a Money Bill is explained in the Constitution as one which deals with matters such as regulations on taxes, government borrowings and the government’s Consolidated and Contingency Funds.

While the current Finance Bill does cover those matters, ire has been raised over the inclusion of amendments relating to tribunals, political donations, income tax raids, Aadhaar and transaction limits, as they do not fit the scope of a Money Bill. Issues have also been raised with the purpose and logic behind the amendments.

However, the Constitution also grants the Speaker the ultimate authority to determine whether or not a bill is a Money Bill, which was the case with this year’s Finance Bill. Here’s a closer look at the purpose and logic behind the amendments and the opposition to them.

Amendments on political donations: The first amendment related to political donations is the capping of the amount of cash a political party can receive as donation without documenting the transaction. The earlier limit of Rs 20,000 has been reduced to a cap of Rs 2,000. This is a good move, as with the earlier one, the loophole would be to take in cash donations of Rs 19,000 in order to avoid reporting the donation.

At the same time, the amendment does still allow for donations larger than Rs 2,000 via cheques or digital payment and also introduces something called ‘electoral bonds’. These various amendments do not exactly specify what an electoral bond will mean in the law, leaving this open to exploitation.

These set of amendments also include doing away with political parties requiring to report funding received through electoral bonds making that process anonymous for both sides involved. So while the government does increase the transparency of money in politics with one amendment, it makes it opaque again with another amendment.

Income tax searches: Amendments to the Income Tax Act of 1961 change in Section 132 of the Act. Specifically, Section 132 concerns the procedure of summons issued to people the I-T Department suspects. The amendments now add language that would make it possible for I-T officers to not disclose the reason behind the execution of the summons — not even to “any authority or the Appellate Tribunal.” This has been included for retroactive summons too, starting from 1962 and 1975.

Retrospective taxation has already been an issue for foreign businesses while investing in India, and Finance Minister Arun Jaitley had spoken against retrospective taxation previously, making this amendment more baffling. This sacrifice of important legal checks and balances in the name of battling corruption, ironically only opens up another avenue of corruption.

With no oversight, there is nothing to stop any potential exploitation due to income tax raids, given that they would not need to cite any reason to “any authority or the Appellate Tribunal.” Such an environment would drive away entrepreneurs and investment and potentially pollute it for businesses, both small and big, Indian and foreign alike.

Amendments to tribunals: The amendments introduced in the Bill pave the way for merger of some existing tribunals with other already existing tribunals. This step has been taken out to ensure better ease of doing business, as it would allow tribunals to centralise their resources and hence carry out faster trials. This is a positive step with ease of doing business in mind and some tribunal mergers do make sense such as merging the Railways Rates Tribunal with the Railway Claims Tribunal.

However, some mergers do not make sense. Take for instance, the merging of the Airports Economic Regulatory Authority Appellate Tribunal with the Telecom Dispu­tes Settlement and Appellate Tribunal. It is hard to see the overlap that a tribunal that deals with the telecom sector will have in the matter of regulating airport economics.

Hence, it will be imperative for the government to carry out the changes in the staffing of these tribunals adroitly. A failure to do so would only weaken the tribunal system and place an even larger load on the new tribunals, which would all go completely against what the amendment aims to do.

Mandatory Aadhaar usage
Amendments introduced in the Finance Bill also make using one’s Aadhaar number mandatory while filing income tax as well as for obtaining and keeping one’s existing PAN card. Having one identification when it comes to income tax collection makes sense as the PAN card serves that purpose.

Any solution to India’s tax problem should focus on the PAN card and not on Aadhaar, which was created to make benefits of distribution easier. By binding Aadhaar with filing income tax, the security risks related to Aadhaar are multiplied, making citizens even more vulnerable.

The overarching problem with these amendments is that they are being forced through the Finance Bill, something which was never intended to have such amendments. These amendments simply do not fit what the Constitution suggests a Money Bill should be. This is government overreach that sets a bad precedent for the future and will weaken healthy political discourse.

The parts of the Finance Bill that does fit a Money Bill, have potential. For instance, part of the changes include one that amends taxes related to foreign portfolio investors to clear confusion over taxation. The amendment in question clarifies the tax code for foreign investors and eliminates wording that led to confusion over multiple taxation, which would have driven foreign investment away.

Amendments such as those show that there is ample scope for the government to stick to what a Finance Bill should do as a Money Bill and make positive changes instead of creating an environment that makes it easy for negativity within both politics and the markets alike to exist.

(The writer is associated with the South Asia Programme of the Hudson Institute, Washington)