Non-tax proposals in the Finance Bill, 2017

Legislation

Non-tax proposals in the Finance Bill, 2017

Tanvi Deshpande - March 22, 2017 Comments

The Finance Bill, 2017 is being discussed in Lok Sabha today. Generally, the Finance Bill is passed as a Money Bill since it gives effect to tax changes proposed in the Union Budget. A Money Bill is defined in Article 110 of the Constitution as one which only contains provisions related to taxation, borrowings by the government, or expenditure from Consolidated Fund of India. A Money Bill only needs the approval of Lok Sabha, and is sent to Rajya Sabha for its recommendations. It is deemed to be passed by Rajya Sabha if it does not pass the Bill within 14 calendar days.

In addition to tax changes, the Finance Bill, 2017 proposes to amend several laws such the Securities Exchange Board of India Act, 1992 and the Payment and Settlements Act, 2007 to make structural changes such as creating a payments regulator and changing the composition of the Securities Appellate Tribunal. This week, some amendments to the Finance Bill were circulated. We discuss the provisions of the Bill, and the proposed amendments.

Certain Tribunals to be replaced

Amendments to the Finance Bill seek to replace certain Tribunals and transfer their functions to existing Tribunals. The rationale behind replacing these Tribunals is unclear. For example, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) will replace the Airports Economic Regulatory Authority Appellate Tribunal. It is unclear if TDSAT, which primarily deals with issues related to telecom disputes, will have the expertise to adjudicate matters related to the pricing of airport services. Similarly, it is unclear if the National Company Law Appellate Tribunal, which will replace the Competition Appellate Tribunal, will have the expertise to deal with matters related to anti-competitive practices.

Terms of service of Tribunal members to be determined by central government

The amendments propose that the central government may make rules to provide for the terms of service including appointments, term of office, salaries and allowances, and removal for Chairpersons and other members of Tribunals, Appellate Tribunals and other authorities. The amendments also cap the age of retirement for Chairpersons and Vice-Chairpersons. Currently, these terms are specified in the laws establishing these Tribunals.

One may argue that allowing the government to determine the appointment, reappointment and removal of members could affect the independent functioning of the Tribunals. There could be conflict of interest if the government were to be a litigant before a Tribunal as well as determine the appointment of its members and presiding officers.

The Supreme Court in 2014, while examining a case related to the National Tax Tribunal, had held that Appellate Tribunals have similar powers and functions as that of High Courts, and hence matters related to their members’ appointment and reappointment must be free from executive involvement.[i] The list of Tribunals under this amendment includes several Tribunals before which the central government could be a party to disputes, such as those related to income tax, railways, administrative matters, and the armed forces Tribunal.

Note that a Bill to establish uniform conditions of service for the chairpersons and members of some Tribunals has been pending in Parliament since 2014.

Inclusion of technical members in the Securities Appellate Tribunal

The composition of the Securities Appellate Tribunal established under the SEBI Act is being changed by the Finance Bill. Currently, the Tribunal consists of a Presiding Officer and two other members appointed by the central government. This composition is to be changed to: a Presiding Officer, and a number of judicial and technical members, as notified by the central government.

Creation of a Payments Regulatory Board

Recently, the Ratan Watal Committee under the Finance Ministry had recommended creating a statutory Payments Regulatory Board to oversee the payments systems in light of increase in digital payments. The Finance Bill, 2017 seeks to give effect to this recommendation by creating a Payments Regulatory Board chaired by the RBI Governor and including members nominated by the central government. This Board will replace the existing Board for Regulation and Supervision of Payment and Settlement Systems.

Political funding

The Finance Bill, 2017 proposes to make changes related to how donations may be made to political parties, and maintaining the anonymity of donors.

Currently, for donations below Rs 20,000, details of donors do not have to be disclosed by political parties. Further, there are no restrictions on the amount of cash donations that may be received by political parties from a person. The Finance Bill has proposed to set this limit at Rs 2,000. The Bill also introduces a new mode of donating to political parties, i.e. through electoral bonds. These bonds will be issued by banks, which may be bought through cheque or electronic means. The only difference between cheque payment (above Rs 20,000) and electoral bonds may be that the identity of the donor will be anonymous in the case of electoral bonds.

Regarding donations by companies to political parties, the proposed amendments to the Finance Bill remove the: (i) existing limit of contributions that a company may make to political parties which currently is 7.5% of net profit of the last three financial years, (ii) requirement of a company to disclose the name of the parties to which a contribution has been made. In addition, the Bill also proposes that contributions to parties will have to be made only through a cheque, bank draft, electronic means, or any other instrument notified by the central government.

Aadhaar mandatory for PAN and Income Tax

Amendments to the Finance Bill, 2017 make it mandatory for every person to quote their Aadhaar number after July 1, 2017 when: (i) applying for a Permanent Account Number (PAN), or (ii) filing their Income Tax returns. Persons who do not have an Aadhaar will be required to quote their Aadhaar enrolment number indicating that an application to obtain Aadhaar has been filed.

Every person holding a PAN on July 1, 2017 will be required to provide the authorities with his Aadhaar number by a date and in a manner notified by the central government. Failure to provide this number would result in the PAN being invalidated.

The Finance Bill, 2017 is making structural changes to some laws. Parliamentary committees allow for a forum for detailed scrutiny, deliberations and public consultation on proposed laws. The opportunity to build rigour into the law-making process is lost if such legislative changes are not examined by committees

[i] Madras Bar Association vs. Union of India, Transfer Case No. 150 of 2006, Supreme Court of India, September 25, 2014 (para 89).

Explaining the recent ban on e-cigarettes

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Gayatri Mann - September 19, 2019 Comments

On Wednesday, the government promulgated an Ordinance to ban electronic cigarettes in India. In this context, we look at what are electronic cigarettes, what are the current regulations in place, and what the Ordinance seeks to do.

What are electronic cigarettes?

The Ordinance defines electronic cigarettes (e-cigarettes) as battery-operated devices that heat a substance, which may or may not contain nicotine, to create vapour for inhalation. These e-cigarettes can also contain different flavours such as menthol, mango, watermelon, and cucumber. Usually, e-cigarettes are shaped like conventional tobacco products (such as cigarettes, cigars, or hookahs), but they also take the form of everyday items such as pens and USB memory sticks.

Unlike traditional cigarettes, e-cigarettes do not contain tobacco and therefore are not regulated under the Cigarettes and Other Tobacco Products Act, 2003. This Act regulates the sale, production, and distribution of cigarettes and other tobacco products in India, and prohibits advertisement of cigarettes.

What are the international regulations for e-cigarettes?

India is a signatory to the WHO Framework Convention on Tobacco Control (WHO FCTC) which was developed in response to the globalisation of the tobacco epidemic. In 2014, the WHO FCTC invited all its signatories to consider prohibiting or regulating e-cigarettes in their countries. This was suggested due to emerging evidence on the negative health impact of these products which could result in lung cancer, cardiovascular diseases, and other illnesses associated with smoking.

Since then, several countries such as Brazil, Mexico, Singapore, and Thailand have banned the production, manufacture, and sale of e-cigarettes. Recently, the states of New York and Michigan in USA banned the sale of flavoured e-cigarettes. Whereas, in UK, the manufacture and sale of e-cigarettes has been allowed based on certain conditions. Further, the advertisement and promotion, and the levels of nicotine in e-cigarettes is also regulated.

Prior to the Ordinance, were e-cigarettes regulated in India?

In August 2018, the Ministry of Health and Family Welfare had released an advisory to all states requiring them to not approve any new e-cigarettes and restrict the sale and advertisements of e-cigarettes. Based on this advisory, 15 states including Delhi, Maharashtra, and Uttar Pradesh have since banned e-cigarettes. However, this advisory was challenged in the Delhi High Court in March 2019, which subsequently imposed a stay on the ban.

What does the Ordinance do?

The Ordinance prohibits the production, manufacture, import, export, transport, sale, distribution and advertisement of e-cigarettes in India. Any person who contravenes this provision will be punishable with imprisonment of up to one year, or a fine of one lakh rupees, or both. For any subsequent offence, the person will be punishable with an imprisonment of up to three years, along with a fine of up to five lakh rupees.

Additionally, storage of e-cigarettes will be punishable with an imprisonment of up to six months, or a fine of Rs 50,000 or both. Once the Ordinance comes into force (i.e., on September 18, 2019), the owners of existing stocks of e-cigarettes will have to declare and deposit these stocks at the nearest office of an authorised officer. Such an authorised officer may be a police officer (at least at the level of a sub-inspector), or any other officer as notified by the central or state government.

Note that, the Ordinance does not contain any provisions regarding possession or use of e-cigarettes. The Ordinance will be in force for the next six months, and must be approved by Parliament within six weeks of the commencement of the next session of Parliament. If it is not passed within this time frame, it will cease to be in force.

The Importance of Parliamentary Committees

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Sanat Kanwar - September 19, 2019 Comments

Last week, the Departmentally Related Standing Committees were reconstituted for the first year of the 17^th Lok Sabha. In this context, we discuss the functioning and role of Standing Committees.

The visible part of Parliament’s work takes place on the floor of the House. Parliament meets for three sessions a year i.e., the Budget, Monsoon, and Winter Sessions. This part of Parliament’s work is televised and closely watched. However, Parliament has another forum through which a considerable amount of its work gets done. These are known as Parliamentary Committees. These Committees are smaller units of MPs from both Houses, across political parties and they function throughout the year. These smaller groups of MPs study and deliberate on a range of subject matters, Bills, and budgets of all the ministries.

During the recently concluded first Session of the 17^th Lok Sabha, Parliament sat for 37 days. In the last 10 years, Parliament met for 67 days per year, on average. This is a short of amount of time for MPs to be able to get into the depth of matters being discussed in the House. Since Committees meet throughout the year, they help make up for this lack of time available on the floor of the House.

Parliament deliberates on matters that are complex, and therefore needs technical expertise to understand such matters better. Committees help with this by providing a forum where Members can engage with domain experts and government officials during the course of their study. For example, the Committee on Health and Family Welfare studied the Surrogacy (Regulation) Bill, 2016 which prohibits commercial surrogacy, but allows altruistic surrogacy. As MPs come from varying backgrounds, they may not have had the expertise to understand the details around surrogacy such as fertility issues, abortion, and regulation of surrogacy clinics, among others. The Committee called upon a range of stakeholders including the National Commission for Women, doctors, and government officials to better their understanding of the issues, before finalising their report.

Committees also provide a forum for building consensus across political parties. The proceedings of the House during sessions are televised, and MPs are likely to stick to their party positions on most matters. Committees have closed door meetings, which allows them to freely question and discuss issues and arrive at a consensus.

After a Committee completes its study, it publishes its report which is laid in Parliament. These recommendations are not binding, however, they hold a lot of weight. For example, the Standing Committee on Health made several recommendations to the National Medical Commission Bill in 2017. Many of these were incorporated in the recently passed 2019 Bill, including removing the provision for allowing a bridge course for AYUSH practitioners.

There are 24 such Departmentally Related Standing Committees (DRSCs), each of which oversees a set of Ministries. DRSCs were set up first in 1993, to ensure Parliament could keep with the growing complexity of governance. These are permanent Committees that are reconstituted every year. They consist of 21 Members from Lok Sabha, and 10 Members from Rajya Sabha, and are headed by a Chairperson. The DRSCs primarily look at three things: (i) Bills, (ii) budgets, and (iii) subject specific issues for examination. Other types of Standing Committees include Financial Committees which facilitate Parliament’s scrutiny over government expenditure. Besides these, Parliament can also form ad hoc Committees for a specific purpose such as addressing administrative issues, examining a Bill, or examining an issue.

To ensure that a Bill is scrutinised properly before it is passed, our law making procedure has a provision for Bills to be referred to a DRSC for detailed examination. Any Bill introduced in Lok Sabha or Rajya Sabha can be referred to a DRSC by either the Speaker of the Lok Sabha or Chairman of the Rajya Sabha. Over the years, the Committees have immensely contributed to strengthen the laws passed by Parliament. For example, the Consumer Protection Act, 2019, overhauling the 1986 law, was recently passed during the Budget Session. An earlier version of the Bill had been examined by the Committee on Food and Consumer Affairs, which suggested several amendments such as increasing penalties for misleading advertisements, making certain definitions clearer. The government accepted most of these recommendations and incorporated them in the 2019 Act.

Besides Bills, the DRSCs also examine the budget. The detailed estimates of expenditure of all ministries, called Demand for Grants are sent for examination to the DRCSs. They study the demands to examine the trends in allocations, spending by the ministries, utilisation levels, and the policy priorities of each ministry. However, only a limited proportion of the budget is usually discussed on the floor of the House. In the recently dissolved16^th Lok Sabha, 17% of the budget was discussed in the House.

Committees also examine policy issues in their respective Ministries, and make suggestions to the government. The government has to report back on whether these recommendations have been accepted or not. Based on this, the Committees then table an Action Taken Report, which shows status of the government’s action on each recommendation.

While Committees have substantially impacted Parliament’s efficacy in discharging its roles, there is still scope for strengthening the Committee system. In the 16^th Lok Sabha, DRSCs examined 41 Bills, 331 Demands for Grants, 197 issues, and published 503 Action Taken Reports.

However, the rules do not require that all Bills be examined by a Committee. This leads to some Bills being passed without the advantage of a Committee scrutinising its technical details. Recently, there has been a declining trend in the percentage of Bills being referred to a Committee. In the 15^th LS, 71% of the Bills introduced were referred to Committees for examination, as compared to 27% in the 16^th Lok Sabha.

With the DRSCs now constituted for the first year of the 17^th Lok Sabha, they will soon begin their meetings to select the subjects they are going to examine. Some Committees already have Bills to examine that were referred to them during the 16^th Lok Sabha. Some of these Bills are: (i) the Cinematograph (Amendment) Bill, 2019, (ii) the Allied and Healthcare Professions Bill, 2018, and (iii) the Registration of Marriage of Non- Resident Indian Bill, 2019. So far in the 17^th Lok Sabha no Bill has been referred to a Committee yet.

Non-tax proposals in the Finance Bill, 2017

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