The Hindu Business Line : UK's pre-Budget Report facilitates discussion

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Chennai March 4 Budget is still hot as a discussion topic, even as critics complain that there is too much hype about what is merely an annual exercise of the Government.

To know how things work in the UK, Business Line contacted Reed Smith Richards Butler LLP (www.reedsmith.com) , a London-based law firm. "The UK Budget is one of the landmark events of the UK political and economic calendar," say Mr Huw R. Witty (Partner) and Ms Philippa J. Roles (Solicitor) at the firm.

One learns that the UK Budget has been delivered annually for over two centuries, with only exception: in 1970. "The Budget was to have taken place in July because of the general election earlier that year, Iain Macleod, the new UK Chancellor then failed to deliver a Budget report because he sadly died on July 20, 1970."

In the UK, the Budget is the annual financial statement and review of levels of taxation. "The role of the Budget is: (i) to provide an update on the state of the economy and the public finances; (ii) to present new forecasts for each; (iii) to set out the present Government's economic and fiscal objectives; (iv) to report on the progress the Government has made toward achieving its objectives; and (v) to set out the further steps the Government is taking to meet those objectives," explains the duo from Reed Smith.

"The Budget speech includes a statement of the Government's medium term financial strategy, and the short term economic forecast. Since the 1990s the UK Treasury presents two of these economic forecasts per year."

A healthy trend these days in the UK is that a pre-Budget Report is presented in November/December, to open up the Government's Budget plans to comment and scrutiny several months in advance of the Budget itself. The main Budget is then presented each Spring. Wonder if such a practice will be advisable in India too.

The Budget resolutions in the UK, which form the basis of the Chancellor's statement, are the resolutions for the continuance of income-tax and corporation tax, and the imposition of any new duties or increase in permanent duties necessary to adjust revenue to expenditure. "It is upon these resolutions, along with any other resolutions deemed necessary by the present Government (for example the introduction of new tax anti-avoidance provisions), that the subsequent Finance Bill will be founded," elaborate Mr Witty and Ms Roles.

"The Finance Bill is normally published in April and is considered by Parliament in late Spring, with Royal Assent (this is the point at which the legislation comes into effect) being given no later than the end of August," they outline.

"Although interestingly, one of the key features of UK tax legislation, and something which distinguishes it from any other form of UK legislation, is that some of the measures announced in the Budget may take effect before the Finance Bill is enacted. It is the approval of the Budget resolutions that enables this to happen."

While we too have something similar, especially with regard to indirect tax proposals that come into effect immediately after the Budget is presented, what tax practitioners routinely dread in every Budget are retrospective amendments that can travel backwards by many decades.

D. Murali