Finance Bill 2017: Asserting the Boundaries of Lawmaking?
Mukesh Butani April 1, 2017
The National Democratic Alliance (NDA) government has entered the latter half of its tenure, arguably the most critical phase in a government's lifecycle. This phase assumes importance on two counts. First, the ruling party needs to huddle again to identify the key objectives of its election manifesto for the next round of the public ballot. Second, the voters, by now, tend to gather sufficient quantitative and qualitative data points to evaluate the ruling party's implementation of the promises held out.
One of the key stated intents of the ruling party, before assuming power, was to pedal up India on the 'Ease of doing business' index. Without doubt, the government has put unprecedented focus on this critical economic attribute, with the majority of the economic policies/reforms echoing the motive. Liberalisation of FDI policy, creation of a nurturing ecosystem for manufacturing, and a deep dive into start-up and services sector clearly speak of the governments focus in this respect.
At the Vibrant Gujarat Summit held earlier this year, Prime Minister Narendra Modi stated that "soon, India will become the easiest and one of the best places to do business". While the PMs vision and the government's unstinted focus are definitely laudable, a long journey lies ahead. As per the World Bank's 'Doing Business' report of 2017, India has managed to crawl one rank above, and is currently at 130 out of the 190 countries ranked by the World Bank. This is a strong indication that the government needs to relook at its approach and identify the aspects, which are restricting India's improvement on the 'Ease of doing business' index.
The taxation regime is a key component of the economic framework of every nation, and also one of the preliminary aspects evaluated by domestic and foreign investors. In the past, Indias taxation regime has been infamous for its complexity and vulnerability to protracted litigation, which has dampened investor sentiment. In 2014, the NDA government announced it would endeavour to build a simple, stable and non-adversarial tax regime, curb protracted litigations and strengthen the dispute resolution framework. The government has taken a number of steps on this front that helped ensure the centre-state consensus on Goods and Services Tax (GST) Bill and saw the dispute resolution scheme 2016, among others.
Having said that, the Finance Bill, 2017, (Parliament approved the Bill in its original form on March 30 after the Lok Sabha rejected five amendments moved to it by the Rajya Sabha) includes provisions that have raised questions.
One of these is in the context of Sections 132 and 132A of the Income-tax Act, 1961, which governs search and seizure operations and the administrative framework. The new Finance Bill has introduced an Explanation to Section 132(1) and 132 (1A) to provide that the 'reasons to believe' or 'reasons to suspect', which form the basis of the revenue authorities' decision to invoke search and seizure operations in case of a taxpayer, shall not be disclosed to any person or any authority or Appellate Tribunal. The said amendment confers sweeping powers to the revenue administration, which can potentially be misused, leading to dilution of taxpayer rights. The proposal is premised on grounds of 'confidentiality and sensitivity'.
Another provision is empowering the investigating officials to provisionally attach taxpayers' assets during a search, for up to six months, without completion of assessment. This is propagated on the presumption that the 'raided' taxpayers are guilty, unless proven otherwise. Further, the period for which assessments of a taxpayer can be reopened, pursuant to a search resulting in undisclosed deposit/property of `5 million or more, is extended from six to 10 years.
All these are not devoid of merits, but concerns do emerge when one evaluates the tax administration, particularly at the lower hierarchy, and its preparedness for administering such authority judiciously. Such sweeping powers ought to be coupled with a stringent code of conduct, so that genuine taxpayers are not exposed to unintended consequences. Also, the revenue authorities should be supported by a reliable and robust economic database to ensure that errant taxpayers are identified and dealt with firmly.
The set of amendments relating to the Tribunals also drew flak. In his Budget speech, Finance Minister Arun Jaitley referred to increasing the number of Tribunals over the years and also indicated a need for rationalisation of Tribunals. These amendments are here to consolidate the powers of some Tribunals (such as the powers entrusted with Appellate Tribunal under Airports Economic Regulatory Authority of India Act, 2008, are to be vested with Telecom Disputes Settlement and Appellate Tribunal; the powers of Appellate Tribunal under the Competition Act, 2002, are to be vested with the National Company Law Appellate Tribunal), and will further empower the Central Government to formulate rules in relation to qualifications, appointments, terms of office, salaries and allowances, resignation, removal and other conditions of service for members of the Tribunals.
These have been under scrutiny for three reasons. First, whether there is a sound rationale behind consolidating Appellate Tribunals/adjudicating powers across laws in a single Tribunal; second, considering the scope of such amendments, whether a money bill can be considered an appropriate legal instrument for implementing the changes, and finally, if the government is conflicted in assuming aforementioned powers, considering that it is the biggest litigant.
Although the Parliament has approved the Bill, a debate on the validity of such provisions before the judiciary cannot be ruled out. From here on, it will be a 'wait and watch' policy for taxpayers who will closely monitor the government's implementation strategy while the government will look to assess the on-ground impact. An equally important objective will be to assess the performance of various Tribunals. In fact, this is an area open to significant improvement. A case in point is the Income Tax Appellate Tribunal (ITAT), which celebrated its 75th anniversary in 2016. It is the country's oldest and most premier Tribunal, and also the last fact-finding authority. One of the approaches could have been to deal with the administrative aspects of each such Tribunal, so that only limited cases find their way to courts.
With inputs from Vishwendra Singh