The finance ministry has made a good beginning by reviewing the exemptions with intent to eliminate them
The finance ministry has taken up a review of 523 entries in 5 different Customs exemption notifications. The idea is to eliminate these exemptions after receiving responses from the trade. This move follows removal of 80 outdated exemptions last year and the statement of the finance minister in her Budget speech that more exemptions will be reviewed and eliminated after due consultation with stakeholders.
The list of exemptions for review include 241 entries in the notification 25/99-Cus dated February 28, 1999 (mostly end-use-based exemption in the electronics industry), 59 entries in the notification 25/2002 dated March 1, 2002 (mostly end-use-based exemptions in the electrical and electronics industry), 115 entries in the notification 14/2006-Cus dated March 1, 2006 (mostly upholstery fabrics), 107 entries in the notification 50/2017-Cus dated June 30, 2017 (different types of items and for different purposes) and one entry in the notification 26/2011-Cus dated March 1, 2011 (antiquities). Most of these entries have outlived their utility or become superfluous.
Two of the entries identified for elimination (S. Nos. 430 (ii) and 431 of notification 50/2017-Cus dated June 30, 2017) are of interest to exporters. S. No. 430 (ii) allows duty free import of 101 items by manufacturers in the pharmaceutical and bio-technology sectors, having recognised research and development (R&D) laboratory, up to 25 per cent of the FOB (free on-board) value of exports made during the previous year. S. No. 431 allows duty free import of 119 items by manufacturers in the agro-chemical sector, having minimum exports of Rs 20 crore in the previous year and recognised R&D laboratory, up to 1 per cent of the FOB value of exports made during the previous year. They are required to obtain prescribed certificates from the regional offices of the Directorate General of Foreign Trade in accordance with Para 2.47 of Handbook of Procedures, Vol. 1.
The finance ministry has made a good beginning by reviewing the exemptions with intent to eliminate them. However, distortions in the Customs duty rate structure will not go away merely by removing exemptions for identified entries. A lot more needs to be done by way of reducing the number of duty rates, eliminating more exemptions and abolishing cess and surcharges. Having a single rate for all items in a chapter will help reduce classification disputes.
Sukumar Mukhopadhyaya, former member of Central Board of Excise and Customs, has pointed out repeatedly in his columns in this newspaper that the Customs duty structure is irrational with 19 rates like 150, 100, 85, 70, 65, 60, 50, 40, 35, 30, 25, 15, 10, 7.5, 5, 3, 2.5, nil and some specific duties. There are hundreds of exemptions with conditions, certifications and list of items that make Customs duty determination quite difficult. He has repeatedly advocated simplification of the Customs duty rate structure.
In his 1999 Budget speech, former finance minister Yashwant Sinha said he is conceptually averse to zero Customs duty, since our domestic industry generally merits some minimal protection. He reviewed the list of such commodities and started imposition of a 5 per cent rate of duty for some commodities. The present leadership in the finance ministry should consider that policy afresh and do away with most exemptions, except for life saving drugs and export promotion, and honour the obligations under the multilateral, regional and bilateral trade agreements.email:firstname.lastname@example.org