Bypassing Parliament scrutiny

The inclusion of non-tax proposals in the Finance Bill undermines the legislative process

The first Budget session of the 17th Lok Sabha is underway. Earlier this month, Finance Minister Nirmala Sitharaman outlined the government’s budgetary proposals in her speech in the Lok Sabha. After finishing her speech she introduced the Finance Bill. The rules of procedure of the Lok Sabha refer to the Finance Bill as a Bill which is introduced each year to give effect to the financial proposals of the government for the next financial year. It ordinarily contains the details of the changes in the tax rates and other consequential changes in the tax laws of the country. 

However, the Finance Bill of 2019, in addition to amending the tax laws, also amends several other laws unrelated to taxation in the country. For example, it amends the Reserve Bank of India Act, the National Housing Bank Act and the Insurance Act to change the net worth requirements of non-banking finance companies, housing finance companies and foreign insurance companies engaged in reinsurance. In addition, it proposes amendments to enable RBI to take measures for the management of NBFCs. 

Even in the 16th Lok Sabha, some Finance Bills amended laws which were not connected to the taxation regime in the country. The Finance Bill of 2016 amended the RBI Act to establish the Monetary Policy Committee as a statutory body responsible for inflation targeting. The 2017 Finance Bill, changed the composition of 19 tribunals such as the Securities Appellate Tribunal, the Telecom Disputes Settlement and Appellate Tribunal, the National Green Tribunal and repealed seven other authorities including the Competition Appellate Tribunal. The Finance Bill, 2018, had 218 clauses, half of which were matters unrelated to the imposition of taxes. 

In our parliamentary system, all Bills go through a detailed scrutiny process. This scrutiny process is multi-tiered. First MPs have the opportunity to oppose the introduction of a Bill. Thereafter a Bill is referred to a Parliamentary Committee composed of MPs from both Lok Sabha and Rajya Sabha which examines in detail each clause of a Bill. It also invites government and other experts to share with the committee their views on the Bill. Thereafter the Bill is debated extensively on the floor of both Houses of Parliament. However, the Finance Bill, which falls in the category of a Money Bill, does not go through a similar process. For one, it is the exclusive preserve of the Lok Sabha. The Rajya Sabha can only make suggestions for amending the Finance Bill. Also, its suggestions are not binding on the Lok Sabha. In addition, Finance Bills do not go through the detailed scrutiny of a Parliamentary Standing Committee. Which means that if a Finance Bill contains provisions other than those related to taxation they escape the scrutiny process of Parliament. 

The Finance Bill of 2019, in addition to amending the tax laws, also amends several other laws unrelated to taxation

The first speaker of the Lok Sabha, G V Mavalankar, was of the opinion that a Money Bill could contain provisions other than those related to the imposition of taxes if such provisions were necessary for the administration of that tax. His successor, M A Ayyangar,  provided a more specific interpretation of what could be included in the Finance Bill. In 1956 he said, “I would normally urge upon the Finance Minister, not only he but also all his successors, to see to it that only those provisions which relate to the raising of taxation should be included in the Bill. The procedure should be followed and no other provisions should be given attention to unless they are absolutely consequential.” In 2017, the Speaker of the Lok Sabha also suggested that every effort should be made to separate taxation measures from other matters. 

Changes in the taxation regime of a country may vary depending on the economic policies being followed by a popularly elected government. Such changes can only be done by the directly elected house as long as the government enjoys the confidence of that house. However, structural changes in our legal system, which are unrelated to taxation, should only be done through the established mechanism of scrutiny and deliberation by both houses of Parliament. There is no reason to exclude the Rajya Sabha from deliberating on the changes of a permanent nature to the legal system and having its opinion addressed. Such changes should only be made through separate Bills which go through the full scrutiny of Parliament. 

Bypassing of this process results in such changes getting embroiled in litigation. Currently, the Supreme Court is hearing several petitions that question the constitutional validity of changes made to the structure and composition of tribunals as was done by the Finance Bill, 2017. More importantly, when substantive structural and regulatory changes to laws are included in the Finance Bill, it sets a bad precedent and undermines the role of Parliament in ensuring that the lawmaking process is rigorous as well as consultative. 

The authors are with PRS Legislative Research