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PSC's Budgetary Reforms Recommendations Merit Timely Action

APRIL 04, 2018

By TIOL Edit Team

FINANCE Ministry should act promptly on recommendations made by Parliamentary Standing Committee (PSC) on Finance in its post-budget reports on its departments especially the Department of Revenue (DOR).

PSC, in its report on DOR's demand for grants (DFG) for 2018-19, has raised pertinent issues on both tax and non-tax revenue front that ought to be addressed straight away.

We hope the Ministry would present a comprehensive report on performance of Enforcement Directorate (ED), Central Board of Excise and Customs (CBEC) and Central Board of Direct Taxes (CBDT) for last three years within three months as desired by PSC.

Some of the performance parameters mentioned by PSC are number of cases booked, investigated, assets attached and cases successfully prosecuted including the time period involved therein.

The significance of this recommendation lies in the fact that tax arrears today equal the size of economy. Tax arrears continue to rise year after year. We hope Government would not have any reservation on PSC's recommendation to create a roadmap for timely and efficient recovery of tax arrears.

As put by PSC, DOR "seems to be caught up in the vicious cycle of tax arrears, as more than Rs. 11.50 lakh crore (Rs. 9,30,741 crore in direct taxes and Rs.2,28,530crore in indirect taxes) which is almost the size of an economy are outstanding in the form of tax arrears".

As regards direct taxes arrears, it has noted that more than 94% of it has been categorized under "demand difficult to recover ", whereas in indirect taxes, only 22.84% are said to be " clearly recoverable ".

Another PSC observation that underscores the need for a report card on performance of CBEC, CBDT and ED relates to the revenue outcome of demonetization.

PSC says: "we still do not know the quantum of tax realised as a consequence of exchange of notes during the course of demonetisation. The Committee find that the tax collected from the amnesty scheme, Pradhan Mantri Garib Kalyan Yojana (PMGKY) seems to be very small in the context of the expectation created at the time of its launch. The perception that demonetisation would yield huge benefits in terms of income tax, does not seem to have happened so far ".

It has rightly sought a timely report on outcome of search and seizures operations & action against benami asset owners under demonetisation. PSC wants an assurance from the Government that " unaccounted money in the economy has become minimal post-demonetisation ".

It is here pertinent to point out that PSC has not directed Finance Ministry to make public three studies on black money that UPA Government had assigned to three leading institutions. Putting these reports in public domain is crucial to generating anti-tax evasion ideas from all stakeholders.

As for goods and services tax (GST) flux, the Committee has recorded its surprise over the fact that Government has not fixed GST receipts target. It has thus urged the Government to sort out all lingering issues to stabilize GST regime. It has also stressed the need for rationalizing GST tax rates to broaden the tax base and to enhance tax compliance

Three tax reforms suggestions from PSC that merit consideration are: 1) recommendation for matching reduction in corporate tax rate with corresponding cuts in tax exemptions; 2) making strings-free standard deduction allowed to salaried tax payers; and 3) doubling limit for tax exemption on long term capital gains to Rs two lakh to benefit small investors.

Two annual, recurring themes over which PSC has voiced concern are massive increase in refund of excess direct and indirect taxes paid and expansion of income tax base. PSC has hinted that there is more to it than what meets the eye in booming refunds business. We hope CBDT and CBEC would probe refunds domain and take remedial initiatives accordingly.

As for widening tax base, PSC has given a timely reminder to the Government on direct tax code, which Modi Government had put it on back-burner.

The Report says: "the Government needs to eliminate distortions and inequities embedded in the present system which should also be seen to be fair and just. The long-awaited Direct Taxes Code should squarely address this issue at the policy level while simplifying / rationalizing the process and procedures".

PSC has also done well to remind the Ministry to exercise restraint in budget adventurism. A case in point is the salaries and allowances of Members of Parliament.

PSC has contended that these should not be made part of the Finance Bill, as the Constitution clearly stipulates that they should be considered as aseparate Bill or an amendment Bill. The Ministry should thus mull over the propriety of bringing these in the Finance Bill. They should continue to be under domain of the Salary Allowances and Pension of Members of Parliament Act, 1954.

Similarly, in its report on 2018-19 DFG of other departments of Ministry, PSC has deplored the Ministry's decision to acquire control over the Central Road Fund (CRF) from the Ministry of Road Transport and Highways (MORTH).

PSC believes MORTH has administered CRF well for many years.

As put by the Report, " The Committee are not convinced as to the reasons behind bringing the Central Road Fund (CRF) under the jurisdiction of Ministry of Finance from the control of respective infrastructure Ministry. The Committee would,therefore, recommend that infrastructure funds such as this should naturally remain within the control and jurisdiction of the respective Ministry/Department dealing with the subject for more efficient implementation and effective monitoring thereof ".

Yet another case of adventurism disapproved by PSC is the consolidation of Outcome Budget (OB) of all ministries into a single one presented last year by Finance Ministry.

PSC noted that consolidated OB neither serves the intended purpose nor is transparent insofar as performance of the Government is concerned.

The Committee has thus recommended restoration of earlier practice of each ministry preparing its separate OB to improve transparency and clarity in allocations, actual expenditure and implementation of various schemes and projects.

A common concern that finds mention in both reports pertains to gigantic variations in the budget and revised allocations and actual expenditure under different heads.

PSC says: "The Committee would thus expect the Ministry of Finance being the nodal Ministry of the Government, to observe elementary financial norms and maintain fiscal prudence while making budgetary allocations in future".

As regards the trend of declining non-tax revenue noticed in recent years, the Committee has advised Government to probe this trend and take more initiatives to ramp up this revenue.

PSC says: "The Government should think of alternate options, such as utilisation of surplus land for commercial exploitation instead of just depending ondisinvestment of PSUs alone, which is akin to selling the family silver".

Taking forward this recommendation, we would urge the Government to muster political will to shift VVIPs from colonial bungalows to luxury and green apartments.

The resulting surplus land in Delhi and other cities can prove to be game-changer in generating funds for poverty elimination, strengthening of national security and in management of fiscal space.