During the last couple of years, the government has taken many positive steps to come out with relief and reform measures to manage the impact of the covid pandemic on the Indian economy and industry. These have contributed greatly to the simplification of the overall tax regime, and Union Budget 2023-24 can add to this ongoing effort to boost growth.
The year 2021-22 was one of reforms in customs tariffs. The Central Board of Indirect Taxes and Customs (CBIC) has taken various initiatives to digitize customs processes and compliances as well as simplify duty tariffs. The effective duty structure has been significantly simplified by removing more than 400-odd exemptions, incorporating the effective rates in the tariff entry itself. This mega exercise was carried out without any significant impact on the effective rate of import duties.
A set of general principles applied in the duty structure (as discussed below) would encourage domestic manufacturing and calibrate it in alignment with global trade trends in a manner that will serve to strengthen India’s manufacturing capacity and export competitiveness, with the support of policy moves such as the phased manufacturing programme together with the production-linked incentive (PLI) scheme.
There are certain moves that the government can consider to further enhance the ease of doing business for taxpayers and encourage external trade. These include a rationalization of the tariff structure, laying out a roadmap for the digital transformation of customs processes and litigation resolution.
First, a graded roadmap is needed to shift duty slabs to a competitive level over a period, with the exception of a few products presently in the higher slabs, so that domestic manufacturers have time to adjust. Duty on imports of raw materials should be in the lowest or nil slab, intermediates in the lower slab of 2.5-5% and final products in the standard slab. A phased manufacturing programme along with PLIs for key sectors would give domestic manufacturing a much-needed impetus. This will help Indian industry integrate into global value chains while making its goods and services competitive in world markets. A review of final and intermediate products needs to be undertaken in consultation with stakeholders to ensure that inputs that are not manufactured in India are imported at lower duty to raise the export competitiveness of final products made here.
Second, to improve the ease of doing business, digital API connectivity can be leveraged for uploading data schema for Bill of Entry or Shipping Bill preparation, collating Import General Manifest (IGM) details filed by shipping lines from IceGate, and initiating payments of customs duty. Digital intervention may also allow data sharing with other government portals to facilitate the necessary ‘paperwork’ for licences, electronic bank realization certificates, certificates of origin and other documents under the Directorate General of Foreign Trade (DGFT).
The government recently extended its Remission of Duties and Taxes on Exported Products (RoDTEP) scheme to three key sectors, a laudable step. The rates for all products should now be enhanced to make them commensurate with their actual embedded taxes and duties. Also, RoDTEP should cover all export items. Export incentives such as duty drawback may be transferred directly to the bank accounts of exporters, instead of being routed through the issuance and transfer of credit scrips. Also, debiting of other duties like the Integrated Goods and Services Tax (IGST), anti-dumping duty (ADD) and cesses should be permitted by means of duty scrips.
It also needs to be ensured that the benefits available under free trade agreements (FTAs) don’t defeat the overall objective of the PLI scheme and simultaneous rationalization of customs duty rates on raw materials and finished goods.
Various measures for the ease of doing business that need to be taken include a facility for auto-renewal and access to import/export data through IceGate for authorized economic operator (AEO) certificate holders; an extension of the timeline for filing Bills of Entry and duty payments without interest for air shipments; timely disposal of appeal cases by lower appellate authorities; and more data on import documents related to multi-location and/or multi-business organizations so that the department as well as such corporates can easily identify transactions and track them by the location and business they relate to.
The integration of the DGFT portal and IceGate should be robust, so that data is seamlessly picked up from the latter’s server. Such steps will substantially reduce exporters’ cost, time and effort.
Also, there is a need to further simplify compliances in the import duty exemption scheme of the Manufacture and Other Operations under Warehouse Rules (MOOWR) Act. Allowing depreciation of value on used capital goods for payment of customs duty and extending the time for payment of duty after removal of finished goods in line with depreciation admissible under the Export Oriented Units (EOU) and Special Economic Zones (SEZ) schemes would greatly benefit stakeholders. Necessary provisions should also be made to allow a transition from other export-promotion schemes such as EOU and SEZ to MOOWR without payment of duty.
Three, a one-time dispute resolution plan, like the Sabka Vishwas scheme, should be introduced under the customs law to settle pending disputes.
The Authority for Advance Ruling (AAR) plays a significant role in enhancing the ease of doing business and avoiding tax litigation. Accordingly, there is an acute need to enlarge the scope of and augment AAR teams to bring down the pendency of cases.
These initiatives would go a long way in moving the country towards a stable, predictable and taxpayer-friendly regime.
Chandrajit Banerjee is director general, Confederation of Indian Industry.