The annual Finance Bill may soon become far less exciting as the government plans to lift the veil of secrecy surrounding tax proposals in Budget. Once the Direct Taxes Code (DTC) and Goods and Services Tax (GST) are in place, the finance ministry will adopt a public discussion approach for most future decisions, while confining the annual exercise to a few procedural changes.
The Union Budget is kept a top secret, mainly due to indirect tax proposals, which if made public early, could result in hoarding. The government thinks GST, proposed to be introduced in April 2011, would address the issue by minimising the need to have frequent changes in the tax structure.
The transparency process would start with the direct tax proposals, which always come into effect in the beginning of the new financial year, unlike indirect taxes that come into effect immediately. Finance Bill will not have much significance once DTC is introduced. The changes will not be as frequent as they are today. If the government plans to make any changes in the law, it may have first a public debate on it, just like the way it is having now on the draft DTC, said an official in the finance ministry who did not wish to be identified because the proposal has not been finalised yet.
At present, tax rates are stipulated in the Finance Act every year. Officials who drafted DTC had proposed prescribing all rates in the First to the Fourth Schedule of the code itself, thereby obviating the need for an annual Finance Bill. The changes in the rates, if any, will be done through appropriate amendments to the schedule brought before Parliament in the form of an Amendment Bill.
Another official in the ministry, however, said doing away with the Finance Bill completely would not be practical as it contains legislative proposals relating to direct as well as indirect taxes.
The schedules might not be required, but the Finance Bill may remain even though it will not be as comprehensive as it is today. We cannot freeze rates and slabs for several years. Amending the bills, even if it is once in few years, would be a tedious job, the official said.
After the introduction of the Right to Information Act, this will be the second significant step towards shifting to a more transparent regime, which has been long called for in the country. Unlike India, there is not much hype around Budget tax proposals in most other developed countries of the world like the US. Budget proposals in most countries are not a secret and are widely discussed in public.
For the first time tax rates will be part of the code in India, which is aimed at giving long-term stability. Singapore already has that kind of a structure, said Uday Ved, head of tax practice, KPMG India. He said, post DTC and GST, the first part of the Budget which deals with macro economy would still be relevant, but not necessarily the second part, which deals with tax proposals.
In India, entry to the North Block housing the finance ministry is restricted and all phone lines and mobiles of the officials working on the Budget are monitored at least a month before the Budget presentation. The secrecy level is so high that even the finance minister cannot take the Budget speech home with him. The Budget documents are printed at the press in the basement of North Block and the people involved are locked in for almost three weeks.
In a survey by the Centre for Budget and Governance Accountability in 2008, India did not even feature among the top 10 out of 85 countries that maintain transparency and openness in their Budget-making process. The survey, in fact, said India is among the 27 countries that provide incomplete information to its citizens on the Budget.