Friday, February 7, 2014

Finance minister P. Chidambaram will present the interim budget for the financial year 2014-15 on 17 February. Since the country will go for Lok Sabha polls in April-May, which will lead to the formation of a new government at the Centre, the usual practice is that the incumbent does not make changes to the tax laws when its tenure is about to end. This allows the new government in office to make the amendments for the year, if necessary.

What is it?
  • Interim budget is basically a vote-on-account that authorizes the government to carry out expenditure on different heads for a certain part of the financial year.
  • Since the government of the day will not be presenting the budget for the full year, it will need funds in the next financial year (beginning April) to carry out its functions till the time a new government is formed and then gets the budget passed. Thus, the need for an interim budget.
  • As per the law, it is necessary for the central government to have Parliament’s approval to raise tax revenue or incur expenditure. Article 265 of the Indian Constitution, for instance, says, “No tax shall be levied or collected except by authority of law.” Similarly, article 266 talks about the conditions for expenditure.
According to a news report by the Press Trust of India, Chidambaram was quoted as saying, “We can make any proposal short of amending any law. We cannot propose amendments to the Income-tax Act, Customs Act or the Excise Act. But any proposal short of amending a law can be made. We can also outline vision for the future.”
In the past two instances of when interim budgets were presented (2004-05 and 2009-10), the government of the day sought the nod of Parliament for carrying out expenditure in the first four months of the financial year.

What to expect
Although the government will not be making any changes in the tax laws, the finance minister may use this opportunity to highlight the achievements of his government and the progress made in different areas over the years.
He may also choose to highlight the policy direction for the future if the government comes back to power. Meanwhile, households and businesses will now be focusing on the outcome of the general elections to get a sense of possible changes in tax laws that will have an effect on their economic life. Expect the full budget to be presented by the new government sometime in July this year.

Going into the technicalities between Interim Budget and Vote -on-Account ...!

Are a vote-on-account and an interim Budget the same?

No. While a vote-on-account deals only with the expenditure side of the government's budget, an interim Budget is a complete set of accounts, including both expenditure and receipts.

So what is a full Budget?

The Budget is a statement of the financial position of an administration for a definite period of time based on estimates of expenditures during the period and proposals for financing them. A full budget thus spells out both the manner in which the money is to be spent and how it is to be raised.

Why a vote-on-account and not an interim Budget?

A caretaker government typically opts for a vote-on-account, as it is regarded improper for an outgoing government to impose on its successor changes that may or may not be acceptable to the incoming government.

Can a caretaker government not present a full Budget?
  • Yes it can. Since the concept of 'caretaker government' does not exist in the Indian Constitution, legally there is no distinction between caretaker government and a normal one.

  • Technically, it is not necessary for a government to present a vote-on-account in an election year. But a full Budget just before the elections makes a mockery of the whole exercise.

Can the finance minister make policy statements while presenting the vote-on-account?

  • Barring any announcement on taxation, the finance minister's speech before seeking Parliament's approval of the vote-on-account can contain his intentions on economic policy.
  • When former finance minister Yashwant Sinha presented the vote-on account in 1991, he announced the Chandra Shekhar government's plan to divest government equity in public sector undertakings.

For how long can a vote-on-account be in force?
  • Normally, the vote-on-account is taken for two months only. But during election year or when it is anticipated that the main Demands and Appropriation Bill will take longer time than two months, the vote-on-account may be for a period extending two months.
  • Typically this period does not exceed six months, as that is the maximum gap possible between two sittings of the Parliament.
  • Normally a vote-on-account is in operation till the full Budget is passed.

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