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39 amendments to the finance bill is a telling statistic – Mint

Many of the changes would not be required if checks and balances and filters were in place as part of the decision-making processes in the government. (Photo: Mint)

39 amendments to the finance bill is a telling statistic

The annual budgetary exercise for FY23 came to completion with Parliament approving the Finance Bill 2022 last week after accepting as many as 39 amendments proposed by the government to the bill and rejecting through voice vote the ones proposed by the Opposition.

Legislation requiring a large number of amendments isn’t something out of the ordinary. It’s routine for governments to move changes soon after tabling legislation in Parliament. But that’s no reason to omit to ask what altered so drastically within 50 days that the government had to move so many amendments to a bill for a budget made supposedly with a horizon of 25 years?

As happens with most legislations, several of the amendments proposed are necessitated by inattentive drafting. Examples include that seek to replace in the bill ‘a resident’ with ‘any resident’, ‘194R’ with ‘194R(1)’, ‘(a)’ with ‘(i)’ and ‘(b)’ with ‘(ii)’.

Another type of amendment is for making the budget’s provisions more precise. Such as by introducing a definition of the word ‘pendency’ in a specific sub-section as, “For the purposes of this sub-section, the term “pendency” means the period commencing from the date of filing of application for such succession of business before the High Court or ….”

Similarly, there’s an amendment for clearing the ambiguity around the term “transfer” in a provision in the Finance Bill on the tax to be paid on virtual digital assets. The provision disallows the setting off of losses from transactions in virtual digital assets while computing taxable income. The amendment clarifies that the provision applies to virtual digital assets regardless of whether they are construed as capital assets or not.

Another class of amendments seeks to clarify the budget’s proposals in response to concerns raised by taxpayers affected by specific provisions. Such as on the disallowance of cess and surcharge as deductions. Through this provision, the government wants to correct what it regards as an anomaly arising from court rulings over the years that allowed taxpayers to claim cess payments as an expenditure. That reduced their tax outgo. The Finance Bill, as tabled on 1 February, seeks to make this correction with retrospective effect, which has businesses worked up because the proposal entailed a penalty of 50% of the amount of tax saved by claiming deduction of cess. And so, the government is proposing an amendment to give taxpayers an opportunity to seek non-levy of any penalty. For which they’ll have to pitch to the assessing officers, seeking re-computation of total income minus surcharge or cess as an expenditure.

While governments must amend proposals in response to stakeholder feedback to allay fears, confusion and concerns, and lesser ambiguity is welcome too, especially since it reduces litigation in the already clogged courts, that amendments become necessary within weeks of bills getting tabled in Parliament reflects poorly on the whole approach to policy-making. Many of the changes would not be required if checks and balances and filters were in place as part of the decision-making processes in the government.

Sloppy drafting, careless proofreading, failure to complete stakeholder consultations and feedback gathering ahead of introducing bills in Parliament point to low standards of professionalism, and high levels of tolerance in government for frequent changes and amendments, and low capacity for thinking through proposals carefully before finalizing decisions. At the extreme, this attitude results in policy flip-flops and uncertainty that investors loath. From demonetization to the Goods and Services Tax (GST), frequent changes that are often confusing, contradictory and distortionary, and increase inconvenience and transaction costs for citizens, is the norm, not the exception. And it will remain so unless the thinking through of consequences of decisions well ahead of policy action is coded into the decision-making process.

Prime Minister Narendra Modi and finance minister Nirmala Sitharaman have been nudging India Inc. to put the shock of the pandemic behind and start investing once again. One of the reasons businesses are yet to take the bait and make new investment bets is policy uncertainty, a significant risk.

In 2019, the Economic Survey had offered suggestions on ways in which government can improve its policy certainty. First, policy actions ought to be predictable. For which policymakers must provide forward guidance on policy stance and then that stance must reflect in the policy actions taken, and policy implementation is rid of ambiguity and arbitrariness. Investors’ confidence in policy predictability can be secured by making it mandatory to state upfront the time horizon over which a policy will not be changed. Second, the government must measure and report its economic policy uncertainty through a scientifically constituted index that should cover all aspects of taxation, trade, banking, fiscal and monetary policy. The third recommendation was to get certification for the quality of policy implementation by the implementing agencies, just private firms compete for quality certifications in support of their record of performance.

And if it finds doing all this is too difficult, the government can make a modest start by hiring competent proofreaders.

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