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Centre's Fiscal Stance stirs both Positive & Negative vibes

AUGUST 31, 2023

By TIOL Edit Team

FISCAL oversight of the Union Government (UG) finances by empowered entities is generating mixed signals.

On the positivity front, the key signal is the Government's decision to accept all recommendations of Parliamentary Standing Committee (PSC) on Finance pertaining to Department of Revenue (DoR's) Demand for Grants (DFG) for 2023-24.

On the alarming side is the no change in Government's approach towards reiteration by Comptroller & Auditor General (CAG) of certain suggestions to improve fiscal discipline. The negativity is palpable in slew of CAG reports presented during the last three days of Monsoon session of Parliament.

The beep-beep signals on this issue, for instance, emanate loudly from the CAG report on financial audit of the UG Accounts for FY 2021-22 presented on 10th August 2023.

Let us first elaborate the feel-good factor first. PSC's follow-up or action taken report (ATR) on DoR's DFG 2023-24 shows 100% acceptance by DoR of its relevant recommendations. The former gave its recommendations in its original report on the same subject presented during June 2023.

Noting that "although all the Committee's recommendations have been accepted in principle for compliance ,” PSC articulated its stance on them in ATR. It expects DoR to furnish actual action taken on its suggestions within three months of ATR presented to Parliament on 27th July 2023.

It is heartening to find from this report that DoR is finally gearing up to fulfill stakeholders' long-pending demand for formation of GST Tribunal. DoR told PSC that it is in process of framing rules for the proposed Tribunal. PSC considers this as a "welcome step" as it would help ensure resolution of GST disputes in "a timely and efficient manner .”

PSC rightly emphasized the need for update on implementation of its recommendations pertaining to online GST audit and search & seizure operations of tax administration.

Another positive development that deserves mention is Income Tax Department's (ITD's) proposal to issue a common income tax return (ITR) form by merging all existing forms except ITR 7. ITD believes that proposed ITR form aims to bring "ease of filing returns to individuals and non-business-type taxpayers considerably .”

Turn now to Beep-Beep signals implying laxity and indifference in resolving fiscal concerns raised periodically by empowered entities. It is indeed disappointing to find that same or similar set of fiscal issues find mention in successive reports of financial oversight entities, notably CAG.

A glaring case in point is accounting of the cess/levies. This issue has been raised separately by CAG and Public Accounts Committee (PAC) in their respective recent reports. PAC selectively scrutinizes in detail certain observations contained in CAG reports.

As put by CAG report cited earlier in this editorial, "there were instances of short/non-transfer of collected amounts of cess/levy to the designated reserve funds, non-opening/non-operationalisation of reserve funds, dormant reserve funds without any transactions there under and deviation from approved accounting procedure etc."

Cesses are categorized into two groups: cess taxes and cess fees. The proceeds from cess taxes are credited into Consolidated Fund of India (CFI) and later earmarked within it. The receipts from cess fees, on the other hand, are first credited to CFI and later transferred to non-lapsable special funds created for the specific purposes.

Take the case of cess on crude and natural gas that is imposed under Oil Industry Development Board (OIDB) Act, 1974. The Act provides for setting up of Oil Industry Development Fund (OIDF).

PAC has expressed concern over Ministry of Petroleum and Natural Gas's "lackadaisical reply" and asked it to "urgently" ascertain & disclose the reasons for not constituting OIDF.

Like OIDF, certain other specific reserve funds have not yet been created in the Public Account. As aptly put by PAC, "non-creation/non-operation of reserve funds makes it difficult to ensure that cesses and levies" are utilized for specified purposes.

Noting many discrepancies in management of proceeds from cess taxes, PAC believes these imposts are apparently levied to finance revenue deficit.

We believe this perception should be resolved by a thorough study all forms of cess and surcharges. Let this be done under the aegis of 16th Finance Commission as and when it is constituted.

PAC has done well to recommend preparation of a guidance note on accounting of special-purpose cess funds. It made this suggestion keeping in view long delays in finalization of accounting rules for certain cess funds such as Pradhan Mantri Swasthya Suraksha Nidhi .

We endorse PAC's recommendation for a special audit of the utilization of the proceeds from collection of various cess.

It is hard to disagree with PAC's suggestion to incorporate a sunset clause in enabling legislation for any new cess. PAC also wants avoidance of any ambiguity in laws enacted for specific cess.

There are slew of other recent reports from PAC, Estimates Committee and different PSCs that merit attention in discourse on fiscal transparency and accountability.

Similarly, certain other CAG reports presented during the monsoon session generate signals for fiscal tightening, both on the revenue and expenditure sides. These include reports on: 1) Union Government Finance and Communication (Compliance Audit); 2) Union Government (Indirect Taxes – Customs) pertaining to IT Audit of Indian Customs Electronic Data Interchange System (ICES) 1.5, 3); 3) Performance Audit of Ayushman Bharat - Pradhan Mantri Jan Arogya Yojana and 4) Implementation of Phase-I of Bharatmala Pariyojana pertaining to national highways.

Suffice it to say that the Centre and the States should take seriously the findings & recommendations of financial oversight entities to improve governance.



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Shri N K Singh, recipient of TIOL FISCAL HERITAGE AWARD 2023, delivering his acceptance speech at Fiscal Awards event held on April 6, 2024 at Taj Mahal Hotel, New Delhi.

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