Experts prefer calendar year as new financial year

With the government constituting a committee to examine the desirability and feasibility of a new financial year, instead of the existing April-March period, experts are of the view that a calendar year, January-December, would be in line with the global markets and regulatory agencies.

While many countries observe their agricultural crop year — July-June in India — as financial year, experts say India should consider aligning itself with global financial, taxation and regulatory systems by following the calendar year.

Also Read: Panel To Examine Case For Change In Financial Year

“The International Monetary Fund (IMF) and the World Bank follow the calendar year. Most governments follow the calendar year. But the US follows the October-September period. Almost all multinational companies follow the calendar year,” said a senior government official.

“Life will be simpler, especially on the taxation front. When we are talking about cross-border transaction and taxation, shifting to a calendar year will be more efficient. Taxes, data, statistics, everything will be simpler,” the official added.

It should be noted that most global forecasts by IMF, World Bank, and Organization for Economic Cooperation and Development, including on GDP or gross domestic product, are on a calendar year-basis. “The biggest positive will be that India will become more compliant with the rest of the world, as very few countries use the April-March year,” said N R Bhanumurthy of National Institute of Public Finance and Policy.

But changing the financial year of a country as large as India is easier said than done. “If such a move happens, the entire financial system has to be shifted accordingly and it may not necessarily be a short-term move. It will be a long-drawn process,” said Shubhada Rao, chief economist, YES Bank.

The government panel led by former chief economic advisor Shankar Acharya would examine the suitability of the existing financial year from the point of view of correct estimation of receipts and expenditure of central and state governments, the effect of different agricultural crop periods, relation of the financial year to the working season, impact on businesses, taxation system and procedures, statistics and data collection, and the convenience for legislatures in transacting Budget work. The panel will also have former Cabinet secretary K M Chandrasekhar, former Tamil Nadu finance secretary P V Rajaraman, and Rajiv Kumar of the Centre for Policy Research.

In case a change in the financial year is recommended, the committee may work out modalities for effecting the change, which would include appropriate timing of change, determination of a transitional period, the change in tax laws during the transitional period. It would have to work out modalities for changes that may be required in laws and changes in the coverage of the recommendations of the Finance Commission.

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BATTLE BETWEEN YEARS

• Govt on Wednesday announced a panel to probe feasibility of doing away with April-March year
   
• A new starting point for financial year will be decided by the panel
   
• Committee will be led by former chief economic advisor Shankar Acharya
   
• Experts say a calendar year would be in line with the global markets and regulatory agencies
   
• Many countries observe agricultural crop year as financial year