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).
TRAI released its recommendations on auction of spectrum on April 23, 2012. The recommendations are in pursuance of the Supreme Court order cancelling 122 telecom licences. The cancellation was ordered on grounds of procedural irregularities and arbitrariness in the first-cum-first-serve policy for allocation of spectrum. The recommendations, if adopted by the Department of Telecommunications, would change various aspects of the present telecom policy, including (a) relationship between a telecom licence and spectrum; (b) procedure for allocation of spectrum; (c) pricing of spectrum; (d) limits on spectrum allocation; and (e) use of spectrum. Relationship between telecom licences and spectrum Previously, under the Telecom Policy 1994 (updated in 1999), spectrum was tied in with telecom licences. Since 2003, licence conditions provided for award of two blocks of 6.2 MHz of spectrum for GSM technology and two blocks of 5 MHz for CDMA technology. As per the government’s decision of January 17, 2008 (as explained in TRAI's consultation paper, see page 3 paragraph 7) additional spectrum would be awarded on the basis of increment in the number of subscribers. Service providers had to pay a licence fee (on obtaining the licence), an annual licence fee and a spectrum usage charge determined on the basis of their adjusted gross revenue. TRAI has recommended that telecom licences and spectrum should be de-linked. The service provider would thus pay separately for the value of the licence and the spectrum. With this formulation an entity that does not hold a licence, but is eligible to secure one, may also procure spectrum. This would help in avoiding situations where licence holders have to wait to secure spectrum or offer wire line services in the absence of spectrum. Procedure for allocation of spectrum TRAI has recommended that spectrum be auctioned by means of a simultaneous multiple round ascending auction (SMRA). This means that the service providers would bid for spectrum in different blocks simultaneously. In the first round of auction a reserve price (base price) set by the government is used. Reserve price for auction and payment mechanism A reserve price indicates the minimum amount the bidder must pay to win the object. In case it is too low, it may reduce the gains made by the seller and lead to a sub-optimal sale. If it is too high, it may reduce the number of bidders and the probability of the good not being sold. Various countries have adopted a reserve price of 0.5 times the final price. TRAI has recommended that the reserve price should be 0.8 times the expected winning bid. It has also recommended that telecom companies pay 67% to 75% of the final price in installments over 10 years, depending on the spectrum band. TRAI has reasoned that a higher price would reduce the possibility of further sales upon bidders securing spectrum. However, this may lead to fewer bidders and ultimately fewer service providers. It is argued in news reports that this may increase investments to be made by the service providers and eventually an increase in tariffs. Spectrum blocks and caps TRAI has recommended that the spectrum cap should be determined on the basis of market share. A service provider can now secure a maximum of 50% of spectrum assigned in each band in each service area. However, a service provider cannot hold more than 25% of the total spectrum assigned in all the bands across the country. As per the January 2008 decision, additional spectrum could be awarded to telecom companies when they reached incremental slabs of subscribers. This could extend to two blocks of 1 MHz for GSM technology, and two blocks of 1.25 MHz for CDMA, for each slab of subscribers. TRAI has recommended that spectrum should be auctioned in blocks of 1.25 MHz. Each auction would at least offer 5 MHz of spectrum at a time. Smaller blocks would ensure that service providers who are nearing the spectrum cap may secure spectrum without exceeding the cap. However, experts have argued that 1.25 MHz block may be too limited for launching services. Also, TRAI in the recommendation has noted that a minimum of 5 MHz of contiguous spectrum is required to launch efficient services with new technologies. Use of spectrum TRAI has recommended that the use of spectrum should be liberalised. This implies that spectrum should be technology neutral. Telecom companies would now be free to launch services with any technology of their choice.
