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Budget must not ignore reforms in customs
January, 30th 2012

If you intend to import chewing gum, be prepared to pay 45% duty of customs, which is 15% more than other confectioneries. If you want to import male donkey you have to pay 25% but the female donkey can be imported for 30%. Does such discrimination against female donkey not hurt Women's Lib?

On a more serious note, there are very many, in fact too many, such exemptions which are continuing more for inertia of the officers than deliberate decisions by any minister. Minister's choices are of a different type where a lobby is to be satisfied. That category is also in abundance.

Can you imagine how many rates of duty are there? The rates are like 150, 100, 150, 100, 85, 70, 65, 60, 50, 40, 35, 30, 25, 17.5, 15, 10, 7.5, 5, 3, 2.5, nil & some specific rates .
Then there are 50 lists covering at least 2,000 items and more than 100 conditions which apply,though not all at a time. Tariff also requires certificates from any or more of 32 departments - if exempted rates are to be allowed - such as Director General of Foreign Trade (DGFT), Deputy Secretary, ministry of tourism; Director of Vanaspati, Vegetable Oil and Fat (Department of Food & Public Distribution), etc.

What I can suggest for improving the tariff is to introduce the system of One chapter one tariff in as many chapters as possible. It may not be possible in chapters like 22, 27, 84, 85 , 87 and 90 which are variegated chapters but it can be possible in most chapters.

Even in these chapters many exemptions can be withdrawn. The 19 rates can be combined into 100, 50, 30, 10, 7.5 and nil. There should not any exemption to the extent of 5 % or 2.5 %. The fundamentals of the economy being strong, a difference of 5 % or 2.5 % can be withstood by the industries. Industries will be boosted if so many conditions are abolished and lists are pruned. Declarations should be accepted rather than certificates and bonds. The export related exemptions need to be combined and rationalised because they are the biggest source of controversy.

On the valuation side there needs to be a fundamental reform
The Custom House has a lot of information about the valuation of similar goods in their computers but they are not disclosed to the importers. All the data available with the Custom Houses should be floated in a website for everybody to see and consult. This will make the importer suitably armed with the information about the classification and valuation of the goods so that if the appraiser wrongly wants to call the goods undervalued, then they can counter the claim by quoting from the website.

Unjust enrichment
The law of barring unjust enrichment made in 1991 by amending Section-11B of Excise Act and Section- 27 of the Customs Act has become highly controversial and litigation prone. There are daily litigations on this subject and refunds have been held up due to referring the matter to a larger bench of the Supreme Court. The law should be scrapped because economically the law cannot be justified. In the economic cross currents of a globalised economy, where Japan, America and Europe are not having this sort of anti-profit law, can Indian businessmen compete with them living in such a pseudo-socialistic and populist economic strait-jacket?

Hidden subsidies in the tariff like exemption for telecommunication sector and Delhi Metro should be abolished. Direct subsidy should be better rather than hidden subsidy.

Clearance of goods out of customs control
Officers of customs claim that two thirds of goods are released without any checking on the basis of risk analysis. Actually it should be one hundred percent if the risk analysis is proper.

In Customs, unless the above reforms are done in the tariff and law, the hope that customs classification and work in general will now be quicker because the process is computerized will remain a chimera. The belief that computer will expedite clearance is a sheer misconception. It is a useful tool but it cannot deliver results without a simple tariff.

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