The popular notion that the customs and excise tariffs and procedures have been simplified since 1991 when the proclaimed reforms started is not entirely true. The duty rates have no doubt come down, but the complications have not. No doubt the Department of Indirect Taxes has been computerised, but that does not help in simplifying the complicated tariffs and procedures, which still plague the system.
The customs tariff even now has 21 duty rates apart from numerous specific rates. They are - 181, 105,100, 85, 75, 70, 65, 60, 45, 40, 35, 30, 25, 15, 12.5, 10, 7.5, 5, 3, 2, nil & specific rates in various chapters. The higher rates are mostly for agricultural goods.
What is most troublesome for importers is that there is a plethora of exemptions with conditions and lists of goods. The total entries in the main exemption is now 458 instead of 431 in the previous year.
Certificates of use from 38 organisations such as DGFT, Apparel Export Promotion Council are necessary for granting exemptions. Result is delay in clearance; the so-called Green Channel for cargo clearance is not green enough.
Reform in Customs should mainly be to remove exemptions, provided the principle of 'One Chapter, One Rate' is followed at least for the largest majority of the Chapters. The conditions can also be minimised by accepting declarations only. Since the duty rates have come down, it is time to throw away the excessive precautions by believing the importers' declarations.
Misuses and aberrations can be detected by intelligence organisation within the department. In fact, there are many unmerited exemptions for goods meant for Railways, Metro-Railways, Oil Exploration, Geographical survey and Telecommunication industry, etc. These are commercial organisations and there should not be any hidden subsidy to them. An open subsidy is better as it is transparent and is subject to public scrutiny.
In Central Excise also the tariff has remained complicated though most of goods are now classified under one duty rate namely 16 per cent. There are still various duty rates namely, 8, 12, 16, 24, 37.5, 42 and specific rates. The main exemption notification has 298 entries, 63 conditions and nine Lists attached.
There are exemptions based on whether power has been used in manufacture - always a fertile source of litigation. Exemptions are also based on geographical locations of the factory. Cenvat Credit procedure also needs simplification - there were three good suggestions in the Partho Shome Committee Report and in the Kelkar Committee Report:
- Input and capital goods should not be distinguished in the Cenvat regime.
- The concept of manufacture should be replaced by the concept of use when giving Cenvat credit.
- All goods should be declared as eligible to Cenvat except those in a negative list.
This would make the working of Cenvat more easy. And as these suggestions have not been implemented, it needs to be set right in this Budget.
In Service Tax regime complications exist mainly due to a plethora of clarifications issued which need to be reissued in a simplified manner.
The tax rate should become 14 per cent from the present 12 per cent to match with Cenvat which should be also 14 per cent so that a combined Goods and Services Tax can be possible at the Central level. GST preparation must be made now onwards and this will be the first step towards the goal for the year 2010.
The writer is former member, Central Board of Excise & Customs
