Huge tax mess stares nation if Budget is not passed

NEW DELHI, APRIL 6: If the current political turmoil results in Parliament not passing the Union Budget, a huge tax mess will stare the n...

NEW DELHI, APRIL 6: If the current political turmoil results in Parliament not passing the Union Budget, a huge tax mess will stare the nation, with all the excise and customs duty changes proposed by Finance Minister Yashwant Sinha set to expire on May 12. In which case, if the Budget is not passed by then, the pre-Budget rates will once again apply after this day, and thousands of companies across the country will once again start exercises to see if consumers have to be charged more or less.

There will, however, be no immediate impact on the Budget proposals on income and corporate taxes. This is so because, under the excise rules, all proposals on indirect taxes come into effect immediately once the Budget speech is made but are valid only for 75 days unless passed by Parliament by then.

Under normal circumstances, the Lok Sabha was set to pass the Budget by April 23, and the Rajya Sabha by the first week of May, well before the 75 day deadline expired.

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While few political parties are evenaddressing the issue of the Budget at the moment, it appears that most are in favour of agreeing to a vote-on-account in the event the Government falls. This, however, is not good enough, as all that a vote-on-account does is to provide funds to ensure that the business of Government does not grind to a halt and that existing programmes and expenditure carry on.

The vote-on-account, however, does not deal with any excise and import duty proposals. In case Parliament does not agree to a vote on account, as in December 1997 when Parliament was not in session, the Government can recommend that the President issue an ordinance clearing the sanction of funds to carry on the basic expenditure of Government.

Finance Ministry officials who are anxiously keeping tabs on political events agreed that it seemed unlikely that any Government would want to pass Yashwant Sinha’s Budget if the Government failed a vote of confidence. “But it would be better”, a senior official said, “if they passed the current Budgetproposals and changed them later when a new budget is proposed.”

If they don’t, and the indirect tax proposals expire on May 12, it will take at least a couple of months before any new Budget can be presented. In which case, the excise and customs tariffs currently in force will lapse on May 12, from May 12 till say July 12 the pre-budget tariffs will apply, and after that the new tariffs will apply.

If Budget isn’t passed…

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By May 12, unless the Budget is passed in full, all excise and customs changes proposed in the Budget will expire. Rates prevailing before Feb 27 will come into force. All companies will re-work tax liabilities to decide whether or not to hike or lower prices.

The present vote-on-account which enables govt departments and ministries to get funds expires May-end and so a new one will have to be sought till a new Budget is presented.

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