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Budget approval process to be split

Subhomoy Bhattacharjee

The current political uncertainty has forced the government to plan the unusual step of splitting the process of seeking Parliament's approval of the Budget.

The Appropriations Bill is likely to be pushed through in the Lok Sabha by April 24 without debate and the Finance Bill, containing tax proposals, is expected to be taken up later.

The Appropriations Bill contains the expenditure plan of the government and is normally clubbed with the Finance Bill during the debate for which the finance minister announces the final modifications to the budget proposals.

The President's consent was obtained on Thursday for introducing the Appropriations Bill before taking up the Finance Bill.

The passing of the Appropriations Bill will allow the Union government to draw funds from the Consolidated Fund of India and allocate them to the ministries.

In case of a delay in the passage of the Finance Bill, the move will ensure that the government's financial transactions are not affected.

Meanwhile, the finance ministry has ruled out rolling back its dividend tax proposal. The budget proposed shifting the 10 per cent tax incidence on dividends from companies to shareholders.

While the ministry was set to move a Cabinet note shortly to finalise the amendments to the Finance Bill, officials said the dividend provision was not likely to be touched. "The dividend tax proposal was introduced in the budget after much deliberation," a senior official said.

The provision of taxing dividend distributing companies at a flat rate of 10 per cent gave high net worth individuals an unfair advantage, officials said.

The revenue department is, however, more amenable to the demand for a rollback of changes proposed in Section 88.

They added that since the government did not have detailed data on the impact of the rollback on the revenue projections, the decision to either restrict the benefit to those with annual incomes of up to Rs 300,000 or to go up to Rs 500,000 was expected to be a political one.

The officials acknowledged that the decision to reduce the exemption rates in Section 88 of the Income Tax Act was taken in a hurry during the run-up to the Budget.

The original proposal, moved by the revenue department, was to lower the tax slabs to 5, 15 and 25 per cent on income instead of the present 10, 20 and 30 per cent and to phase out the exemptions simultaneously.

But with a dismal tax performance putting pressure on Budget projections, Finance Minister Yashwant Sinha decided against lowering the tax slabs this year. Instead, he concentrated on the phase-out only.

Moreover, since the surcharge was almost a last-minute decision, there was no time to rework the phase-out. In the budget, the government decided to reduce the exemptions from tax under Section 88 from 20 per cent to 10 per cent for those with salaries between Rs 150,000 and Rs 500,000.

The revenue department has studied the impact of the tax proposals on individual income. It found that for those with salary income of Rs 200,000, the incidence of tax had doubled.

Although it is not part of the Finance Bill, the government is also expected to reduce the hike in fertiliser prices. Sinha raised the issue prices of urea, DAP and MOP by 5 per cent on the recommendations of the Expenditure Reforms Commission.

However, the government is not expected to reduce the postal hikes announced in the budget, although Sinha said last month he would revisit the issue.

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