Why Finance Bill Worrywarts Need To Calm Down

Consider these alarmist headlines in response to the recently-passed Finance Bill 2017:

‘You’ve Just Been Punked’

‘It's a tragedy the media failed to see how Finance Bill endangers idea of India’

‘Narendra Modi’s alarming power grab in unleashing ‘tax terror’’

‘Recipe for unfettered raid raj’

‘How To Make Dubiously-Seized Cash Legal’

From the tone of these headlines, as well as the articles, there seems to be no love lost between the Narendra Modi regime and the authors of these pieces. Be that as it may, the writers need to be commended for raising their voice on issues of immense importance, especially when the mainstream media was found wanting in its journalism – and not for the first time.

Stories about a Shiv Sena member of Parliament (MP) hitting an Air India employee and paranoia over the shutting down of Lucknow’s Tunday Kababi (fake story) overshadowed the all-important changes that the government rammed through in this year’s Finance Bill. We will discuss dereliction of duty on the part of the fourth estate later. First up is criticism surrounding the bill that has picked up traction of late in the social media.

The critical pieces cited earlier in the article are written by Meghnad S, Angshukanta Chakraborty, Saumitra Dasgupta and Mihir Sharma. They have taken the finance minister to task for:

1) Giving unprecedented powers (with retrospective effect) to Income Tax officials, which will inevitably lead to ‘tax terrorism’.

2) Making political funding more opaque and removing monetary limitations on donating big bucks to the political party of choice.

4) Merging as many as eight different tribunals into some existing ones.

Before taking up each of these issues individually, let’s note some meta-criticisms levelled against the government for passing this supposedly draconian bill.

First, questions are being raised over the manner in which the government has time and again taken the ‘Money Bill’ route to pass important legislation so that it can bypass the upper house – where it doesn’t have a majority. Last year, the Aadhaar bill was passed in this way, for instance. Some important amendments related to the contentious privacy clauses moved by Rajya Sabha were later rejected by Lok Sabha. One is not sure if even the milder security- and privacy-related rules are being fully adhered to and this remains a big lacuna. This also proves the ill effects of passing bills without much debate, discussion or regard for the wisdom of the opposition.

But we all know why the Bharatiya Janata Party (BJP) has resorted to this strategy. Remember, for the first couple of years, that’s not how the party operated. It was the opposition that didn’t allow the upper house even to function, let alone allow debate bills. As a result, the upper house was paralysed. The Constitution of India – for the lawyers, of the lawyers, by the lawyers – is loophole personified. And the BJP, with no dearth of lawyerly abilities at its disposal, found a loophole in the legislative process to pass the bills. The opposition has itself to blame. And the BJP will also have itself to blame when it sits in opposition, though at present it may seem that day will never come, given the tide of victories it is riding. But it shouldn’t forget how in 2010 it was the party in shambles and the Congress, after securing a second term, looked invincible.

Second, most of the changes that the government smuggled into the Finance Bill were done at the last minute, taking the members by surprise. The MPs debated on certain amendments, but after the major leaders of opposition had exhausted their quota of speaking time, more amendments were introduced, with no scope for proper discussion or debate. This was done in such haste, as Mr. Meghnad tells us, that “the final amendment papers were never actually circulated!”

If true, this is certainly troubling – no two ways about it.

Third, Meghnad S. in his Newslaundry article has pointed out how the government suspended Rule 80 (1) of the Lok Sabha which says that any amendment shall be within the scope of the Bill and relevant to the subject matter of the clause to which it relates.) He alleges “this particular government seems to have made a habit of not abiding by this very basic rule. They brought in a super-weapon called Rule 388 which says: Any member may, with the consent of the Speaker, move that any rule may be suspended in its application to a particular motion before the House and if the motion is carried the rule in question shall be suspended for the time being.”

The charge that this government brought in this super-weapon rule is simply wrong.

Perhaps, Mr Meghnad is following the Lok Sabha proceedings for the first time because invoking Rule 388 to suspend Rule 80 (1) is a fairly common practice. In 2011, controversial lawyer Prashant Bhushan wanted the Parliament to invoke this rule so that the house could discuss Lokpal Bill. Suresh Prabhu and Yashwant Sinha used this rule in 2001, Pranab Mukherjee used it in 2011, Sharad Pawar in 2011, P. Chidambaram in 2012, 2013 and Arun Jatiely in 2014.

When members raised objection over this rule in 2012, the Chair said it’s the ‘practice’.

This is what simple google search was able to reveal. I am sure more digging would yield a lot of similar results.

Fourth, critics say the Prime Minister chanted the mantra of ‘minimum government, maximum governance’ before the election but is now expanding the powers of the state in a manner not seen in decades. They are not quite on the mark in saying so as we will see later.

The most scathing criticism of the Finance Bill has been reserved for the amendment handing vast powers to the taxman.

How? According to Section 132 of the Income Tax Act, the taxman, if he has reason to believe that (a), (b), (c)

Now, Finance Bill 2017 has not changed any of these seemingly draconian sections. It has added a clarification – an addendum, if you will – to underscore what the phrase ‘reason to believe’ means.

Explanation.––For the removal of doubts, it is hereby declared that the reason to believe, as recorded by the income-tax authority under this sub-section, shall not be disclosed to any person or any authority or the Appellate Tribunal.

Those who don’t see this as alarming point out that this was implicit and was already the practice earlier. The government has only made it explicit by adding a clarification. However, this has clearly given the taxman vast powers. Remember, the tax authorities still have to follow the due procedure (as shown in IT Act clauses above); it’s just that no one can question what made them believe that a raid was legitimate and justified. It’s no one’s case that the taxman explain his reasoning to the one being raided (obviously) but to absolve him of any responsibility to not even disclose (if asked) or supply this information to ‘any person or any authority or the Appellate Tribunal’ is fraught with risks. This is an open invitation to the taxman to throw caution to the wind because unlike earlier he would now be answerable to none.

It also goes against the spirit of ‘minimum government, maximum governance’, a phrase often touted by the Prime Minister as a sign of his pro-business credentials.

The government reasons that “Certain judicial pronouncements have created ambiguity in respect of the disclosure of 'reason to believe' or 'reason to suspect' recorded by the income tax authority to conduct a search under section 132 or to make requisition under section 132A’. Essentially, the courts have said that a mere rumour or suspicion cannot be the basis for a raid. This has increasingly created difficulties in the taxman’s work. Saumitra Dasgupta in his piece writes that “The tax amendment could remove an impediment to the resolution of a large number of tax cases that have been stuck in courts across the country.”

Maybe, just maybe, the government doesn’t have any ulterior motives as has been suggested by some observers. Let’s assume it’s doing it out of a genuine desire to clean the corrupt system. But is that enough? What if the next government is not as benevolent? There is serious potential for misuse. Good intentions are not enough.

Political funding

Arun Jaitley had announced three major changes in electoral funding while presenting his budget. These were, lowering cash contribution from Rs 20,000 to Rs 2,000 from a single source, a new policy of electoral bonds wherein an individual donor can buy them anonymously via cheque and donate to a party of his choice, and giving corporations unlimited freedom to contribute to political parties (earlier there was a limit) without disclosing the name of the recipient.

Critics have quibbled about not abolishing cash donations altogether and leaving a loophole open, though making it logistically more difficult. This is a good step, and as R Jagannathan argues here, it is never a good idea to make the good the enemy of the best. Another criticism is that with the electoral bonds policy, the government has made it easier for parties to give donations anonymously.

One is hard-pressed to understand why this is a bad thing. A person must have the right to give their money to a legal entity to promote an ideology or cause without having to disclose their identity. While critics see this as opacity from the point of view of the parties, such anonymity is critical to individual donors. When we don’t ask a voter who they voted for, why should we ask donors who they donated to? This goes for corporations too.

While the virtue of allowing the corporations to give unlimited money to parties is debatable, it’s still an improvement over the previous policy. Now you can at least be sure that the money is white as it comes through cheques. What the government could’ve done is make the companies also donate through electoral bonds. That would’ve meant that the parties wouldn’t know which corporation donated to them, thereby reducing the possibility of quid pro quo. But then again, let’s not make the good the enemy of the best.

Now, what has been included towards the end are significant and deserve scrutiny:

First, linking your Aadhaar number to PAN cards. Those who fail to do so before 1 July (the GST deadline) will have their PAN cards invalidated. The government justifies this move by saying that many people have four to five PAN cards, and linking Aadhaar, a unique number, would automatically cancel all the duplicate PAN cards in one stroke.

Could the government have offered more time? Sure, it would’ve been convenient for everyone if this was announced in the budget itself so that people without Aadhaar cards could’ve made one by now. Still, there are three months to go, and the process to get an Aadhaar is speedy.

Also, here’s a look at Aadhaar penetration in the country.

So, one fails to understand the spread of hysteria when one article declares, “after July 1, 2017, not having an Aadhaar number would be effectively criminal as citizens will not be able to file their income tax returns.” Creating unnecessary panic doesn’t help.

Sure, we can question the wisdom of having so many cards – Aadhaar, PAN, voter ID, Passport, Ration card and so on. The government can probably club all of these different cards into two, Aadhaar and Passport, where the former could also act as a citizenship card. The other area that we need to question the government on is security aspects. Aadhaar data shouldn’t be made available to anyone without the consent of the concerned individual.

Second, another last-minute change that is alleged to have been sneaked into the Finance Bill was the merging of eight quasi-judicial dispute resolution tribunals with existing ones. (This charge is not entirely true.)

But first, let’s see the reaction, which is a textbook case of paranoia.

Let me get this straight. So you will mock the Prime Minister for not following the mantra of ‘minimum government’, but when he does something to shrink the size of the government (merging tribunals), you will mock him anyway?

Another criticism about the clause on tribunals is that the central government will now make rules to provide for the qualifications, appointments, the term of office, salaries and allowances, resignation, removal and other conditions of service for these members. This criticism is valid. Critics say the government is a litigant in many cases which will come before the tribunals, and since the person deciding on these matters will be a government appointee, it will lead to a conflict of interest. This line of thought is dangerous and has already led to disastrous consequences such as the collegium system, which has disturbed the balance of power and accountability. Let’s not extend it to tribunals too. (To put it on record, one is completely against the idea of tribunals which the governments have created to wrest some judicial power from the courts. Tribunals should be called quasi-executive rather than quasi-judicial.)

Also, Meghnad S. says that “he (Arun Jaitley) did not utter a single word about the provisions on making Aadhaar mandatory for income tax filing or the merging of tribunals.” Well, that’s simply not true. If Meghnad were to read Jaitley’s budget speech, he would find this on Page 25, Paragraph 128:

Finally, coming to the charge of dereliction of duty on the part of mainstream media (MSM), one isn’t surprised. Some serious violations of constitutionality and rule of law failed to find scrutiny in the press. The MSM didn’t report how blatantly Sonia’s UPA communalised India’s education system by passing 93rd constitutional amendment and then the Right to Education Act. It didn’t question when state governments one after another took control over temples. It was cheerleading Anna’s Lokpal instead of questioning how it would greatly expand the powers of the state. It is futile to expect the old media to dive into such intellectual debates. Thankfully, new online platforms and social media have taken up that mantle.

To conclude, it’s clear that, except in the case of Aadhaar, the finance minister had mentioned the other three moves in his budget speech. While some of the changes have a potential for misuse, the doomsday scenarios of authoritarianism portrayed by some are clearly misleading.

(With inputs from Dr V Anantha Nageswaran)