Calendar concerns

Mohan R Lavi | Updated on January 17, 2018


The Centre need not fiddle with the fiscal year

This Government certainly believes in changing established norms. First, the Planning Commission got a desi name. Later, the base year for calculating the GDP data was changed. Now, the Centre has constituted a Committee to advise on the feasibility of changing the financial year of the government from April to March to the calendar year, or January to December.

The committee is to examine the merits and demerits of various dates for the commencement of the financial year. It is supposed to keep in mind the suitability of the financial year from the point of view of correct estimation of receipts and expenditure of the Centre and States, the effect of agricultural crop periods, the relationship of the financial year to the working season, impact on businesses, taxes, statistics and data collection and the convenience of the legislature for transacting budget work.

One of the primary reasons for considering this change is to enable Budget makers to make a correct estimation of the impact of the monsoon.

If the Committee does recommend a change, it could also suggest that the Budget Day be moved from the last day of February to another convenient date. Chambers of Commerce have opposed the move saying that the reason cited for the change does not take into account the impact it would have. They have a point.

Farming concerns

There can be no two opinions on the fact that agriculture constitutes a critical part of the Indian economy. Yet, the share of agriculture in the entire Budget is not eye-popping. Over the years, the Budget has turned into a document that summarises taxation policies and strategies of the Government.

Since we have a very lenient scheme of taxation for agriculture, the tax revenue from this sector is negligible. No government can muster the courage to tax agriculture, since the sector is considered to be a large vote bank. As they maintain minimal accounting records, any financial year would not impact the quality of the data that is received.

Even now, the Budget provides figures of Budget estimates and revised estimates — the purpose of the latter is to incorporate changes for seasonal activities such as agriculture.

However, since the thought of financial year and accounting records is on the government’s radar, what they should do is to consider changing their method of accounting.

Change for good

The present cash system of accounting should make way for an accrual based accounting system which would capture the accounting impact of activities the moment obligations are entered into.

There was some talk of implementing the accrual basis of accounting in the Indian Railways but it appears that the project is not moving as fast as expected.

The only way the losses can be captured effectively is through a robust accounting system. The Centre and States have been disputing the quantum of compensation for central sales tax primarily due to inaccurate data that was provided by the accounting records. The Government should take note of the fact that accounting these days is less of accounting and more of disclosures.

So by trying to change the financial year, the Centre is making a basic error of attempting to fix something that isn’t broken.

The writer is a chartered accountant

Published on August 24, 2016

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor