By Anita Rastogi


A clear mandate of voters, leading to a stable and strong government at the Centre is always a welcome news. It enables government to take the bold steps required to boost investment and economic growth. However, in the case of India, assumption of reins by the new government has come along with a rather disappointing news on economic growth. Due to this, there is a fairly high pressure on new government to take necessary corrective actions.

One of the important corrective actions that can be put to use by government for correcting the growth radar is carrying out an appropriate rejig in the Indian foreign trade segment, especially imports.

The widening current account deficit (CAD) of India indicates that imports exceed exports and hurts the economic growth rate. Improving the situation does not necessarily require curbing imports by raising the duty rates, however, qualitative analysis needs to be performed for determining the required increase or decrease in duty rates.

Increasing the customs duty rates is required (generally) to encourage the domestic value addition and to reduce the country’s dependence on foreign imports. Whereas, in certain cases, finished product attracts lower customs duty rates as compared to the raw materials required for its manufacture, which makes the import of finished products attractive. An upward revision in duty rates in such scenarios results in providing an impetus to the domestic manufacturing sector. Currently, petrochemicals is one such industry which is urging upward revision in duty rates in respect of its components.

On the other hand, manufacturing activities of certain industries depend on the imported raw materials. Lowering of duty rates might become essential in order to provide buoyancy to such industries, especially those which are facing the growth downturn. Further, this lowering of duty rates may result in incentivizing production of quality goods for exports. Recently, metal industry has been demanding lowering of customs duty rates in respect of its critical raw materials.

READ  UPDATE 3-Ghosn, Nissan formally charged in financial misconduct scandal

Along with the changes in duty rates, ground work is also required on overcoming the procedural issues faced by the importers and exporters. Effective implementation of trade facilitation schemes of the government is one of the measures, along with providing suitable clarifications for the contentious issues.

Certain trade facilitation schemes that require tweaking for the benefit of businesses are mentioned below-

1. Merchandise Exports from India Scheme (MEIS)
Under MEIS, exporters are granted duty credit scrips against export of certain goods, which (at present) can be utilized only for the payment of basic customs duty, and not against GST on imports, domestic procurements and supplies. In the pre-GST regime, the scrips could be used for payment of Service tax and additional customs duty as well. This change has led to increase in financial burden on importers, especially in cases where exporter is not able to sell such scrips in the open market.

Hence, amendment should be carried out to allow utilization of scrips towards payment of GST as well. The aforementioned amendment would lead to MEIS retaining its true essence, similar to that of the pre-GST regime. Similar amendment for Services Export from India Scheme (SEIS) is also recommended.

2. Authorised Economic Operator (AEO) Scheme
Under AEO scheme, the license holder is entitled to certain privileges, benefits, exemptions and relaxations on account of import and export. Despite the constant push by the government to enroll more importers and exporters under AEO, certain stringent conditions limits the applicant’s eligibility, such as issue of show-cause notice(s) under Customs law in preceding three financial years.

READ  OYO launches OYO Home in Dubai

Further, certain benefits to which such license holders are entitled have not yet been implemented, such as permission to the holders of AEO-T2 and AEO-T3 certificate to paste MRP stickers in their premises.

Suitable changes, therefore, require to be carried out in AEO scheme to make it effective for the business community.

Certain contentious issues that should be provided with solutions are as follows –

1. Differences in tariff valuation of imported goods –
Generally, the Customs authorities insist on higher valuation of goods imported from related parties, whereas in terms of transfer pricing regulations, the valuation is preferred on lower side. Such inconsistency often lead to avoidable litigation for the importer.

In this regard, a common methodology should be prescribed to calculate arm’s length price.

2. Issuance of Export Obligation Discharge Certificate (EODC) –
EODC is the license required to be submitted to the Customs Department upon fulfilment of export obligation against certain pre-export licenses. Currently, EODC has to be obtained from the jurisdictional DGFT office and then, submitted to the Customs authorities thereafter. The Customs authorities, upon verification of EODC, cancel the Bond/ Letter of Undertaking (LuT) executed by exporter at the time of import.

The entire process is time consuming and can be simplified by enabling DGFT itself to declare in the EODC that all Bonds/ LuT(s) executed in respect of the specific authorization (with Ministry of Finance / Ministry of Commerce) stand cancelled with immediate effect. This information should be automatically updated in records of Customs Department as well.

READ  Restructuring of MSME loans a 'step backwards', risks to manifest in 6-9 months: Fitch

As evident, a lot needs to be done to facilitate businesses to thrive in the foreign trade segment. Directing the efforts towards this would surely go a long way in rebounding the Indian economy from the present phase of low growth.

Anita Rastogi is Partner GST and Indirect Tax, PwC India. Rohit Gupta – Associate, GST, PwC India also contributed for this article.





READ SOURCE

WHAT YOUR THOUGHTS

Please enter your comment!
Please enter your name here